Question 1

Central bank credibility

Accepted Answer

A)  Is irrelevant to the effectiveness of monetary policy 
B)  Is strengthened by a lack of central bank independence 
C)  Is strengthened by central bank independence 
D)  None of the above 
A)  Is irrelevant to the effectiveness of monetary policy 
B)  Is strengthened by a lack of central bank independence 
C)  Is strengthened by central bank independence 
D)  None of the above C

Question 2

A credit crunch will

Accepted Answer

A)  Raise borrowing costs to businesses and households relative to benchmark interest rates 
B)  Tend to reduce aggregate demand 
C)  Cause a negative output gap (if output had been at potential) 
D)  All of the above 
A)  Raise borrowing costs to businesses and households relative to benchmark interest rates 
B)  Tend to reduce aggregate demand 
C)  Cause a negative output gap (if output had been at potential) 
D)  All of the above D

Question 3

A negative aggregate supply shock will

Accepted Answer

A)  Cause output to fall and inflation to fall 
B)  Cause output to fall and inflation to increase 
C)  Not affect output, but cause inflation to increase 
D)  Not affect output or inflation 
A)  Cause output to fall and inflation to fall 
B)  Cause output to fall and inflation to increase 
C)  Not affect output, but cause inflation to increase 
D)  Not affect output or inflation B

Question 4

A main reason why the Fed introduced large-scale asset purchases (quantitative easing) to deal with the Great Recession was

Accepted Answer

A)  It had already lowered its policy rate to zero and could go no lower 
B)  It was in an experimental mood 
C)  It sought to relieve pressure on the federal budget 
D)  This was a coordinated action with foreign central banks 
A)  It had already lowered its policy rate to zero and could go no lower 
B)  It was in an experimental mood 
C)  It sought to relieve pressure on the federal budget 
D)  This was a coordinated action with foreign central banks

Question 5

Having a single monetary policy goal of price stability or low inflation

Accepted Answer

A)  Implies that output and employment will routinely suffer 
B)  Implies that inflation will be more volatile 
C)  Implies that inflation and output and employment can be more stable if the single goal causes inflation expectations to be better anchored 
D)  None of the above 
A)  Implies that output and employment will routinely suffer 
B)  Implies that inflation will be more volatile 
C)  Implies that inflation and output and employment can be more stable if the single goal causes inflation expectations to be better anchored 
D)  None of the above

Question 6

When news about the economy points to weakness, actions taken by market participants anticipating policy actions by the central bank

Accepted Answer

A)  Will help to stabilize the economy if the participants assess this information correctly 
B)  Will tend to push the economy off course if the participants assess the information incorrectly 
C)  Will be irrelevant to economic outcomes 
D)  Both a and b 
A)  Will help to stabilize the economy if the participants assess this information correctly 
B)  Will tend to push the economy off course if the participants assess the information incorrectly 
C)  Will be irrelevant to economic outcomes 
D)  Both a and b

Question 7

A persistent positive aggregate supply shock, say a productivity shock, will

Accepted Answer

A)  Cause output to rise more rapidly and inflation to fall 
B)  Cause output and inflation to rise more rapidly 
C)  Cause output to rise more rapidly and inflation to be unaffected 
D)  Cause inflation to rise more rapidly but output to be unaffected 
A)  Cause output to rise more rapidly and inflation to fall 
B)  Cause output and inflation to rise more rapidly 
C)  Cause output to rise more rapidly and inflation to be unaffected 
D)  Cause inflation to rise more rapidly but output to be unaffected

Question 8

Advocates of a money stock rule have argued that

Accepted Answer

A)  Such a rule would help to control inflation 
B)  Such a rule would help to stabilize output and employment 
C)  Such a rule requires stability of money demand 
D)  All of the above 
A)  Such a rule would help to control inflation 
B)  Such a rule would help to stabilize output and employment 
C)  Such a rule requires stability of money demand 
D)  All of the above

Question 9

If output were at potential and inflation were 4 percent (2 percent above the central bank's target), the appropriate setting of the federal funds rate under a Taylor would be

Accepted Answer

A)  4 percent 
B)  7 percent 
C)  6 percent 
D)  Cannot be determined from the information given 
A)  4 percent 
B)  7 percent 
C)  6 percent 
D)  Cannot be determined from the information given

Question 10

Because of the financial crisis

Accepted Answer

A)  Aggregate demand plunged 
B)  The level of the federal funds rate required to restore output to potential and to stabilize inflation was negative 
C)  The Fed augmented a federal funds rate of zero with forward guidance and large-scale asset purchases 
D)  All of the above 
A)  Aggregate demand plunged 
B)  The level of the federal funds rate required to restore output to potential and to stabilize inflation was negative 
C)  The Fed augmented a federal funds rate of zero with forward guidance and large-scale asset purchases 
D)  All of the above

Question 11

A positive aggregate demand shock affecting an economy that had been operating at potential output

Accepted Answer

A)  Would require a tighter monetary policy if the shock were persistent 
B)  Would require a tighter policy if the shock were one-off and inflation expectations ratcheted upward 
C)  Would require no action by the central bank 
D)  Both a and b 
A)  Would require a tighter monetary policy if the shock were persistent 
B)  Would require a tighter policy if the shock were one-off and inflation expectations ratcheted upward 
C)  Would require no action by the central bank 
D)  Both a and b

Question 12

The economy can move and stay off path for a time because

Accepted Answer

A)  Shocks to aggregate demand 
B)  Lags in information 
C)  Lags in the effects of policy actions 
D)  All of the above 
A)  Shocks to aggregate demand 
B)  Lags in information 
C)  Lags in the effects of policy actions 
D)  All of the above

Central bank credibility

A credit crunch will

A negative aggregate supply shock will

A main reason why the Fed introduced large-scale asset purchases (quantitative easing) to deal with the Great Recession was

Having a single monetary policy goal of price stability or low inflation

When news about the economy points to weakness, actions taken by market participants anticipating policy actions by the central bank

A persistent positive aggregate supply shock, say a productivity shock, will

Advocates of a money stock rule have argued that

If output were at potential and inflation were 4 percent (2 percent above the central bank's target), the appropriate setting of the federal funds rate under a Taylor would be

Because of the financial crisis

A positive aggregate demand shock affecting an economy that had been operating at potential output

The economy can move and stay off path for a time because

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Mortgage Market

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters

Exam 14: Monetary Policy: Challenges Faced by Policymakers

Central bank credibility

A credit crunch will

A negative aggregate supply shock will

A main reason why the Fed introduced large-scale asset purchases (quantitative easing) to deal with the Great Recession was

Having a single monetary policy goal of price stability or low inflation

When news about the economy points to weakness, actions taken by market participants anticipating policy actions by the central bank

A persistent positive aggregate supply shock, say a productivity shock, will

Advocates of a money stock rule have argued that

If output were at potential and inflation were 4 percent (2 percent above the central bank's target), the appropriate setting of the federal funds rate under a Taylor would be

Because of the financial crisis

A positive aggregate demand shock affecting an economy that had been operating at potential output

The economy can move and stay off path for a time because

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

Principles of Portfolio Selection and Efficient Markets

The Money Market

The Bond Market

Securitization

The Mortgage Market

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters