Question 1

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

Accepted Answer

A)  the present value of future earnings will increase. 
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)  the present value of future earnings will increase. 
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 2

The monetary policy transmission mechanism refers to the concept that monetary policy:

Accepted Answer

A)  always seems to work the way central bankers think it will. 
B)  works quickly. 
C)  only works through changes consumption and investment. 
D)  affects the economy in potentially many ways. 
A)  always seems to work the way central bankers think it will. 
B)  works quickly. 
C)  only works through changes consumption and investment. 
D)  affects the economy in potentially many ways.

Question 3

If the target federal funds rate reaches the lower bound:

Accepted Answer

A)  the FOMC would run out of policy options. 
B)  monetary policy would no longer be of use. 
C)  the FOMC would turn to unconventional measures, such as forward guidance. 
D)  the FOMC would simply reset the target. 
A)  the FOMC would run out of policy options. 
B)  monetary policy would no longer be of use. 
C)  the FOMC would turn to unconventional measures, such as forward guidance. 
D)  the FOMC would simply reset the target.

Question 4

What role, if any, did the accounting scandals involving some U.S. companies in 2001 and 2002 play in the supply of loans?

Accepted Answer

The accounting scandals potentially play

Question 5

One reason most central bankers do not set an inflation target of zero is:

Accepted Answer

A)  it is almost impossible to achieve. 
B)  they believe it would cause price volatility. 
C)  the central bank could hit the lower bound. 
D)  none of the answers given is correct. 
A)  it is almost impossible to achieve. 
B)  they believe it would cause price volatility. 
C)  the central bank could hit the lower bound. 
D)  none of the answers given is correct.

Question 6

The relationship between real estate markets and interest rates is:

Accepted Answer

A)  nonexistent. 
B)  inverse; higher interest rates drive down real estate prices and vice versa. 
C)  complex; cuts in the short-term interest rate lead to increases in long-term rates and higher real estate prices. 
D)  direct; high interest rates lead to high real estate values as people abandon other financial assets. 
A)  nonexistent. 
B)  inverse; higher interest rates drive down real estate prices and vice versa. 
C)  complex; cuts in the short-term interest rate lead to increases in long-term rates and higher real estate prices. 
D)  direct; high interest rates lead to high real estate values as people abandon other financial assets.

Question 7

The chapter seems to imply that the direct influence of short-term interest rate changes by central bankers is not that powerful in terms of their direct impact on spending. Why then do so many people pay attention to the monetary policy?

Accepted Answer

While it is true that the direct impact

Question 8

To compensate for the collapse of intermediation and the fragility of financial markets during the 2007-2009 financial crisis, central banks deployed all but which of the following unconventional tools:

Accepted Answer

A)  Forward guidance 
B)  Lowering interbank lending interest rate targets 
C)  Quantitative easing 
D)  Targeted asset purchases 
A)  Forward guidance 
B)  Lowering interbank lending interest rate targets 
C)  Quantitative easing 
D)  Targeted asset purchases

Question 9

The driving force in the balance-sheet channel of monetary policy mechanism is which of the following?

Accepted Answer

A)  Information 
B)  Timing 
C)  Asset diversity 
D)  Bank net worth 
A)  Information 
B)  Timing 
C)  Asset diversity 
D)  Bank net worth

Question 10

Bonds cannot have yields below the effective lower bound because:

Accepted Answer

A)  the U.S. treasury guarantees all bonds to have a positive yield. 
B)  the banking technology does not exist to deal with negative yields. 
C)  people can always hold cash. 
D)  all of the answers given are correct. 
A)  the U.S. treasury guarantees all bonds to have a positive yield. 
B)  the banking technology does not exist to deal with negative yields. 
C)  people can always hold cash. 
D)  all of the answers given are correct.

Question 11

Inflation can reduce the true cost of debt, and policymakers lower interest rates to encourage borrowing. Is it a good idea then to always take advantage of lower interest rates to borrow and rely on inflation to reduce the cost of debt and to increase your ability to repay the loan?

Accepted Answer

While this seems like a good strategy it

Question 12

If a borrower's net worth increases:

Accepted Answer

A)  the likelihood of moral hazard also increases. 
B)  the borrowers are likely to want to take less risk. 
C)  the moral hazard risk for the potential lenders decreases. 
D)  the supply of loans decreases. 
A)  the likelihood of moral hazard also increases. 
B)  the borrowers are likely to want to take less risk. 
C)  the moral hazard risk for the potential lenders decreases. 
D)  the supply of loans decreases.

Question 13

Bonds must have yields above the effective lower bound because:

Accepted Answer

A)  the U.S. treasury guarantees all bonds to have a positive yield. 
B)  the banking technology does not exist to deal with negative yields. 
C)  people can always hold cash. 
D)  all of the answers given are correct. 
A)  the U.S. treasury guarantees all bonds to have a positive yield. 
B)  the banking technology does not exist to deal with negative yields. 
C)  people can always hold cash. 
D)  all of the answers given are correct.

Question 14

Changing short-term interest rates have a(n):

Accepted Answer

A)  strong and immediate impact on household purchase decisions. 
B)  no impact on household purchasing decisions. 
C)  somewhat modest impact on household purchasing decisions. 
D)  none of the answers provided is correct. 
A)  strong and immediate impact on household purchase decisions. 
B)  no impact on household purchasing decisions. 
C)  somewhat modest impact on household purchasing decisions. 
D)  none of the answers provided is correct.

Question 15

Firms have a harder time getting loans during periods of deflation because:

Accepted Answer

A)  deflation aggravates information problems in ways dissimilar to inflation. 
B)  for a firm seeking a loan, deflation increases the real amount of their liabilities without increasing the real value of their assets. 
C)  deflation decreases the net worth of firms. 
D)  all of the answers given are correct. 
A)  deflation aggravates information problems in ways dissimilar to inflation. 
B)  for a firm seeking a loan, deflation increases the real amount of their liabilities without increasing the real value of their assets. 
C)  deflation decreases the net worth of firms. 
D)  all of the answers given are correct.

Question 16

An easing of monetary policy should:

Accepted Answer

A)  increase spending by households and businesses and increase net exports. 
B)  raise net exports but lower spending by households and businesses. 
C)  decrease spending by households and businesses as well as net exports. 
D)  increase investment and household spending but lower net exports. 
A)  increase spending by households and businesses and increase net exports. 
B)  raise net exports but lower spending by households and businesses. 
C)  decrease spending by households and businesses as well as net exports. 
D)  increase investment and household spending but lower net exports.

Question 17

The Federal Reserve's surveys of bank loan officers contain questions about:

Accepted Answer

A)  the interest rates being charged. 
B)  the supply of and demand for loans. 
C)  the quantity and quality of loans. 
D)  all of the answers given are correct. 
A)  the interest rates being charged. 
B)  the supply of and demand for loans. 
C)  the quantity and quality of loans. 
D)  all of the answers given are correct.

Question 18

An open market purchase of securities by the central bank from banks usually will:

Accepted Answer

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

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

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

The monetary policy transmission mechanism refers to the concept that monetary policy:

If the target federal funds rate reaches the lower bound:

What role, if any, did the accounting scandals involving some U.S. companies in 2001 and 2002 play in the supply of loans?

One reason most central bankers do not set an inflation target of zero is:

The relationship between real estate markets and interest rates is:

The chapter seems to imply that the direct influence of short-term interest rate changes by central bankers is not that powerful in terms of their direct impact on spending. Why then do so many people pay attention to the monetary policy?

To compensate for the collapse of intermediation and the fragility of financial markets during the 2007-2009 financial crisis, central banks deployed all but which of the following unconventional tools:

The driving force in the balance-sheet channel of monetary policy mechanism is which of the following?

Bonds cannot have yields below the effective lower bound because:

Inflation can reduce the true cost of debt, and policymakers lower interest rates to encourage borrowing. Is it a good idea then to always take advantage of lower interest rates to borrow and rely on inflation to reduce the cost of debt and to increase your ability to repay the loan?

If a borrower's net worth increases:

Bonds must have yields above the effective lower bound because:

Changing short-term interest rates have a(n):

Firms have a harder time getting loans during periods of deflation because:

An easing of monetary policy should:

The Federal Reserve's surveys of bank loan officers contain questions about:

An open market purchase of securities by the central bank from banks usually will:

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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