Question 1

The impact of monetary policy on the exchange rate and net exports is best described as:

Accepted Answer

A)  the strongest of all the parts of the transmission mechanism. 
B)  powerful, but lagging. 
C)  difficult to forecast. 
D)  nonexistent. 
A)  the strongest of all the parts of the transmission mechanism. 
B)  powerful, but lagging. 
C)  difficult to forecast. 
D)  nonexistent.

Question 2

In theory, lower real interest rates will tend to cause all but which of the following to increase?

Accepted Answer

A)  Consumption spending 
B)  Investment spending 
C)  Net exports 
D)  Government spending 
A)  Consumption spending 
B)  Investment spending 
C)  Net exports 
D)  Government spending

Question 3

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

Accepted Answer

A)  has increased the importance of the bank-lending channel of monetary policy. 
B)  has eliminated the bank-lending channel as a mechanism for monetary policy. 
C)  has not affected the importance of the bank-lending channel. 
D)  will require the FOMC to rethink the quantitative impact of changing the target federal funds rate. 
A)  has increased the importance of the bank-lending channel of monetary policy. 
B)  has eliminated the bank-lending channel as a mechanism for monetary policy. 
C)  has not affected the importance of the bank-lending channel. 
D)  will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.

Question 4

The importance of the bank-lending channel of monetary policy transmission:

Accepted Answer

A)  becomes more important the more important banks are as a source of funds for firms and individuals. 
B)  is likely to become more important with the growth of loan brokers and asset-backed securities. 
C)  has become more important as technology has solved the problems of information and moral hazard. 
D)  none of the answers given is correct. 
A)  becomes more important the more important banks are as a source of funds for firms and individuals. 
B)  is likely to become more important with the growth of loan brokers and asset-backed securities. 
C)  has become more important as technology has solved the problems of information and moral hazard. 
D)  none of the answers given is correct.

Question 5

Why is deflation, combined with a recessionary gap, and a nominal interest rate that cannot be reduced a monetary policymaker's nightmare?

Accepted Answer

If we consider this piece-by-piece the a

Question 6

Why did the FOMC cut the target federal funds rate so aggressively between September 2007 and December 2008 in a series of 10 cuts?

Accepted Answer

This was an example of the Fed acting pr

Question 7

An open market sale of securities by the central bank to banks usually will:

Accepted Answer

A)  diminish the inclination of banks to make loans. 
B)  induce the banks to make more loans since their revenue will decrease if they do nothing. 
C)  increase the amount of deposits in the banking system. 
D)  increase the banks' willingness and ability to make loans. 
A)  diminish the inclination of banks to make loans. 
B)  induce the banks to make more loans since their revenue will decrease if they do nothing. 
C)  increase the amount of deposits in the banking system. 
D)  increase the banks' willingness and ability to make loans.

Question 8

The challenges facing policymakers today include each of the following, except:

Accepted Answer

A)  the economy's sustainable growth rate is highly stable. 
B)  nominal interest rates cannot fall below the effective lower bound (somewhat below zero). 
C)  stock and property values are subject to booms and busts. 
D)  the structure of the economy and financial system continues to evolve. 
A)  the economy's sustainable growth rate is highly stable. 
B)  nominal interest rates cannot fall below the effective lower bound (somewhat below zero). 
C)  stock and property values are subject to booms and busts. 
D)  the structure of the economy and financial system continues to evolve.

Question 9

All of the following could represent the transmission of monetary policy, except:

Accepted Answer

A)  households altering their spending on durable goods. 
B)  income tax rates changing. 
C)  firms altering their growth plans. 
D)  net exports changing. 
A)  households altering their spending on durable goods. 
B)  income tax rates changing. 
C)  firms altering their growth plans. 
D)  net exports changing.

Question 10

Why might the supply of loans increase as interest rates fall?

Accepted Answer

There are a number of reasons for this.

Question 11

One of the limiting factors for using monetary policy is:

Accepted Answer

A)  the central banks are limited in their ability to print money. 
B)  central banks are limited in their ability to make loans. 
C)  there is a lower nominal-interest-rate bound of zero. 
D)  the real interest rate cannot fall below zero. 
A)  the central banks are limited in their ability to print money. 
B)  central banks are limited in their ability to make loans. 
C)  there is a lower nominal-interest-rate bound of zero. 
D)  the real interest rate cannot fall below zero.

Question 12

The Federal Reserve surveys lending officers regularly to:

Accepted Answer

A)  determine the interest rates they charge. 
B)  get a feel for the supply and demand for loans. 
C)  get a feel for the quantity and quality of loans. 
D)  all of the answers given are correct. 
A)  determine the interest rates they charge. 
B)  get a feel for the supply and demand for loans. 
C)  get a feel for the quantity and quality of loans. 
D)  all of the answers given are correct.

Question 13

The importance of the bank lending transmission mechanism of monetary policy:

Accepted Answer

A)  has increased over the past thirty years. 
B)  has decreased over the past thirty years. 
C)  should continue to grow in importance. 
D)  has always been the weakest of all of the mechanisms. 
A)  has increased over the past thirty years. 
B)  has decreased over the past thirty years. 
C)  should continue to grow in importance. 
D)  has always been the weakest of all of the mechanisms.

Question 14

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

Accepted Answer

The arguments for intervention include t

Question 15

Which of the following statements is most correct?

Accepted Answer

A)  High real interest rates cause recessions. 
B)  Central bankers raise real interest rates to cause recessions. 
C)  There is no evidence that high real interest rates are followed by lower levels of growth. 
D)  There is evidence that high real interest rates are followed by lower levels of growth. 
A)  High real interest rates cause recessions. 
B)  Central bankers raise real interest rates to cause recessions. 
C)  There is no evidence that high real interest rates are followed by lower levels of growth. 
D)  There is evidence that high real interest rates are followed by lower levels of growth.

Question 16

Over the past thirty years, bank loans as a percentage of total credit:

Accepted Answer

A)  increased from less than sixty percent to over 90 percent. 
B)  stayed fairly constant at around eighty percent. 
C)  decreased from accounting for virtually all of the credit to less than sixty percent. 
D)  dropped from seventy five percent to less than thirty percent. 
A)  increased from less than sixty percent to over 90 percent. 
B)  stayed fairly constant at around eighty percent. 
C)  decreased from accounting for virtually all of the credit to less than sixty percent. 
D)  dropped from seventy five percent to less than thirty percent.

Question 17

The fact that investors can always hold cash creates:

Accepted Answer

A)  a problem for monetary policymakers when the short-term interest rates approach zero. 
B)  an opportunity for the U.S. treasury to issue bonds that actually have negative nominal interest rates. 
C)  an upward bound on nominal interest rates. 
D)  negative nominal interest rates. 
A)  a problem for monetary policymakers when the short-term interest rates approach zero. 
B)  an opportunity for the U.S. treasury to issue bonds that actually have negative nominal interest rates. 
C)  an upward bound on nominal interest rates. 
D)  negative nominal interest rates.

Question 18

Higher home values can increase output in the economy if:

Accepted Answer

A)  people take some of the equity out of their homes and spend it on a vacation. 
B)  people sell their existing home and build a new one. 
C)  people finance their child's college education by securing a second mortgage on their now higher-valued home. 
D)  all of the answers given are correct. 
A)  people take some of the equity out of their homes and spend it on a vacation. 
B)  people sell their existing home and build a new one. 
C)  people finance their child's college education by securing a second mortgage on their now higher-valued home. 
D)  all of the answers given are correct.

Question 19

Which of the following traditional channels of monetary policy transmission can be described as powerful?

Accepted Answer

A)  The interest-rate channel 
B)  The exchange-rate channel 
C)  Both the interest-rate channel and the exchange-rate channel can be described as very powerful 
D)  Neither the interest-rate channel nor the exchange-rate channel can be described as very powerful 
A)  The interest-rate channel 
B)  The exchange-rate channel 
C)  Both the interest-rate channel and the exchange-rate channel can be described as very powerful 
D)  Neither the interest-rate channel nor the exchange-rate channel can be described as very powerful

Question 20

Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

Accepted Answer

Primarily continued uncertainty about ho

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

The impact of monetary policy on the exchange rate and net exports is best described as:

In theory, lower real interest rates will tend to cause all but which of the following to increase?

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

The importance of the bank-lending channel of monetary policy transmission:

Why is deflation, combined with a recessionary gap, and a nominal interest rate that cannot be reduced a monetary policymaker's nightmare?

Why did the FOMC cut the target federal funds rate so aggressively between September 2007 and December 2008 in a series of 10 cuts?

An open market sale of securities by the central bank to banks usually will:

The challenges facing policymakers today include each of the following, except:

All of the following could represent the transmission of monetary policy, except:

Why might the supply of loans increase as interest rates fall?

One of the limiting factors for using monetary policy is:

The Federal Reserve surveys lending officers regularly to:

The importance of the bank lending transmission mechanism of monetary policy:

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

Which of the following statements is most correct?

Over the past thirty years, bank loans as a percentage of total credit:

The fact that investors can always hold cash creates:

Higher home values can increase output in the economy if:

Which of the following traditional channels of monetary policy transmission can be described as powerful?

Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

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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