Question 1

When central bankers are acting preemptively they are:

Accepted Answer

A)  letting markets work and taking a wait and see approach. 
B)  aggressively trying to hit a zero inflation target. 
C)  usually focused on reducing expansionary gaps. 
D)  taking bold steps to stabilize the economy. 
A)  letting markets work and taking a wait and see approach. 
B)  aggressively trying to hit a zero inflation target. 
C)  usually focused on reducing expansionary gaps. 
D)  taking bold steps to stabilize the economy.

Question 2

Stock prices rise:

Accepted Answer

A)  usually six to twelve months after interest rates are reduced. 
B)  immediately after interest rates are increased. 
C)  in anticipation of an interest rate reduction. 
D)  only after people are convinced the central bank interest rate cut is permanent. 
A)  usually six to twelve months after interest rates are reduced. 
B)  immediately after interest rates are increased. 
C)  in anticipation of an interest rate reduction. 
D)  only after people are convinced the central bank interest rate cut is permanent.

Question 3

When equity and property prices collapse (bust), bank balance sheets are impaired because:

Accepted Answer

A)  banks hold a lot of corporate stocks. 
B)  banks own a lot of property outright. 
C)  the collateral that is backing many of the loans banks have made is now worth less. 
D)  banks hold a lot of corporate stocks and they also own a lot of property outright. 
A)  banks hold a lot of corporate stocks. 
B)  banks own a lot of property outright. 
C)  the collateral that is backing many of the loans banks have made is now worth less. 
D)  banks hold a lot of corporate stocks and they also own a lot of property outright.

Question 4

Stock prices may rise from a reduction in interest rates because:

Accepted Answer

A)  consumer and business confidence about future growth improves. 
B)  stockholders will expect lower future earnings. 
C)  financial market participants are less optimistic about future earnings. 
D)  the present value of future earnings will decrease. 
A)  consumer and business confidence about future growth improves. 
B)  stockholders will expect lower future earnings. 
C)  financial market participants are less optimistic about future earnings. 
D)  the present value of future earnings will decrease.

Question 5

During the 2007-2009 financial crisis, what prevented policy easing from being transmitted as usual to the real economy?

Accepted Answer

Essentially it was the fundamental probl

Question 6

When faced with inflation above desirable levels, is there anything that policymakers can do about concern that a deep recession will lower inflationary expectations sharply and thereby raise real interest rates in a destabilizing manner?

Accepted Answer

Yes, three things. First, they can set t

Question 7

Explain how an easing of monetary policy works through the exchange rate and what potential impact on the economy this would have.

Accepted Answer

An easing of monetary policy lowers the

Question 8

The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet. Explain how the balance sheet of a firm will be impacted by an increase in interest rates.

Accepted Answer

An increase in interest rates will lower

Question 9

Instruments that have been securitized include:

Accepted Answer

A)  mortgage-backed securities held by government-sponsored enterprises. 
B)  car loans and student loans. 
C)  credit card debt. 
D)  all of the answers given are correct. 
A)  mortgage-backed securities held by government-sponsored enterprises. 
B)  car loans and student loans. 
C)  credit card debt. 
D)  all of the answers given are correct.

Question 10

The balance-sheet channel of monetary policy works because it can:

Accepted Answer

A)  increase a borrower's asset value but not the burden of his/her liabilities. 
B)  change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth. 
C)  increase a borrower's assets and reduce the cost of his/her liabilities. 
D)  none of the answers given is correct. 
A)  increase a borrower's asset value but not the burden of his/her liabilities. 
B)  change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth. 
C)  increase a borrower's assets and reduce the cost of his/her liabilities. 
D)  none of the answers given is correct.

Question 11

One impact of the 2007-2009 financial crisis was to heighten the challenges faced by monetary policymakers. All but which of the following was grew more prominent as a result of the crisis?

Accepted Answer

A)  Stock and property values have a tendency to go through boom and bust cycles. 
B)  The nation's current account deficit keeps widening. 
C)  Policymakers options are limited since the nominal interest rate cannot fall below the effective lower bound. 
D)  The structures of the economy and financial system are constantly evolving. 
A)  Stock and property values have a tendency to go through boom and bust cycles. 
B)  The nation's current account deficit keeps widening. 
C)  Policymakers options are limited since the nominal interest rate cannot fall below the effective lower bound. 
D)  The structures of the economy and financial system are constantly evolving.

Question 12

If the target federal funds rate reaches the lower bound the FOMC:

Accepted Answer

A)  must stop purchasing securities since they cannot lower nominal rates below the lower bound. 
B)  would likely shift their focus to purchasing longer-term securities. 
C)  would likely raise the required reserve rate. 
D)  would likely raise the discount rate. 
A)  must stop purchasing securities since they cannot lower nominal rates below the lower bound. 
B)  would likely shift their focus to purchasing longer-term securities. 
C)  would likely raise the required reserve rate. 
D)  would likely raise the discount rate.

Question 13

Monetary policymakers could keep equity and property price bubbles from developing by:

Accepted Answer

A)  raising their interest rate target when they suspect a bubble. 
B)  lowering their interest rate target when they suspect a bubble. 
C)  expanding the money supply in the economy. 
D)  purchasing U.S. treasury securities to drive up their prices. 
A)  raising their interest rate target when they suspect a bubble. 
B)  lowering their interest rate target when they suspect a bubble. 
C)  expanding the money supply in the economy. 
D)  purchasing U.S. treasury securities to drive up their prices.

Question 14

The movement away from bank lending towards asset-backed securities has:

Accepted Answer

A)  increased the importance of the bank-lending channel of monetary policy. 
B)  eliminated the bank-lending channel as a mechanism for monetary policy. 
C)  decreased the importance of the bank-lending channel. 
D)  led the FOMC to abandon interest-rate targets. 
A)  increased the importance of the bank-lending channel of monetary policy. 
B)  eliminated the bank-lending channel as a mechanism for monetary policy. 
C)  decreased the importance of the bank-lending channel. 
D)  led the FOMC to abandon interest-rate targets.

Question 15

The bank-lending channel of monetary policy focuses on:

Accepted Answer

A)  the interest rate banks charge their largest customer. 
B)  the banks' willingness and ability to lend. 
C)  how central bank policy influences the solvency of banks. 
D)  the deposit insurance premiums banks will end up paying. 
A)  the interest rate banks charge their largest customer. 
B)  the banks' willingness and ability to lend. 
C)  how central bank policy influences the solvency of banks. 
D)  the deposit insurance premiums banks will end up paying.

Question 16

For a firm, a decrease in the interest rate resulting from monetary policy can:

Accepted Answer

A)  decrease the value of its assets. 
B)  decrease the cost of its liabilities. 
C)  decrease its net worth. 
D)  all of the answers given are correct. 
A)  decrease the value of its assets. 
B)  decrease the cost of its liabilities. 
C)  decrease its net worth. 
D)  all of the answers given are correct.

Question 17

What are the pros and cons of a policy of "leaning against bubbles?"

Accepted Answer

Leaning against bubbles is a policy of p

Question 18

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

Accepted Answer

When interest rates increase it becomes

Question 19

What are the unconventional policy options that central bankers can use if the traditional target interest rate hits the lower bound?

Accepted Answer

The central bank can use forward guidanc

Question 20

How did financial regulation affect bank lending in the 1980s?

Accepted Answer

In 1980, then President Jimmy Carter aut

Exam 23: Modern Monetary Policy and the Challenges Facing Central Bankers

When central bankers are acting preemptively they are:

Stock prices rise:

When equity and property prices collapse (bust), bank balance sheets are impaired because:

Stock prices may rise from a reduction in interest rates because:

During the 2007-2009 financial crisis, what prevented policy easing from being transmitted as usual to the real economy?

When faced with inflation above desirable levels, is there anything that policymakers can do about concern that a deep recession will lower inflationary expectations sharply and thereby raise real interest rates in a destabilizing manner?

Explain how an easing of monetary policy works through the exchange rate and what potential impact on the economy this would have.

The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet. Explain how the balance sheet of a firm will be impacted by an increase in interest rates.

Instruments that have been securitized include:

The balance-sheet channel of monetary policy works because it can:

One impact of the 2007-2009 financial crisis was to heighten the challenges faced by monetary policymakers. All but which of the following was grew more prominent as a result of the crisis?

If the target federal funds rate reaches the lower bound the FOMC:

Monetary policymakers could keep equity and property price bubbles from developing by:

The movement away from bank lending towards asset-backed securities has:

The bank-lending channel of monetary policy focuses on:

For a firm, a decrease in the interest rate resulting from monetary policy can:

What are the pros and cons of a policy of "leaning against bubbles?"

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

What are the unconventional policy options that central bankers can use if the traditional target interest rate hits the lower bound?

How did financial regulation affect bank lending in the 1980s?

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

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