Question 1

During the years 1979 to 1982,the Federal Reserve's announced policy was monetary targeting. During this time period the Federal Reserve

Accepted Answer

A) hit all of their monetary targets. 
B) did not hit any of their monetary targets because it is believed that controlling the money supply was not the intent of the Federal Reserve. 
C) did not hit any of their monetary targets because they were unrealistic. 
D) hit about half of their monetary targets. 
A) hit all of their monetary targets. 
B) did not hit any of their monetary targets because it is believed that controlling the money supply was not the intent of the Federal Reserve. 
C) did not hit any of their monetary targets because they were unrealistic. 
D) hit about half of their monetary targets.

Question 2

Inflation targets can increase the central bank's flexibility in responding to declines in aggregate spending. Declines in aggregate ________ that cause the inflation rate to fall below the floor of the target range will automatically stimulate the central bank to ________ monetary policy without fearing that this action will trigger a rise in inflation expectations.

Accepted Answer

A) demand: tighten 
B) demand;loosen 
C) supply;tighten 
D) supply;loosen 
A) demand: tighten 
B) demand;loosen 
C) supply;tighten 
D) supply;loosen

Question 3

Suppose it takes roughly two years for monetary policy to have a significant impact on inflation. If inflation is currently low but policymakers believe inflation will rise over the next two years with an unchanged stance of monetary policy,when should they tighten monetary policy to prevent the inflationary surge?

Accepted Answer

A) now 
B) wait until overt signs of inflation appear 
C) next year 
D) two years later 
A) now 
B) wait until overt signs of inflation appear 
C) next year 
D) two years later

Question 4

After Ben Bernanke became chair of the Fed in 2006,he

Accepted Answer

A) increased Fed transparency. 
B) abandoned inflation targeting. 
C) used "just do it" policy. 
D) increased the opacity of the policymaking. 
A) increased Fed transparency. 
B) abandoned inflation targeting. 
C) used "just do it" policy. 
D) increased the opacity of the policymaking.

Question 5

Using Taylor's rule,when the equilibrium real federal funds rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal federal funds rate target should be

Accepted Answer

A) 5 percent. 
B) 5.5 percent. 
C) 6 percent. 
D) 6.5 percent. 
A) 5 percent. 
B) 5.5 percent. 
C) 6 percent. 
D) 6.5 percent.

Question 6

Which set of goals can,at times,conflict in the short run?

Accepted Answer

A) high employment and economic growth 
B) interest rate stability and financial market stability 
C) high employment and price level stability 
D) exchange rate stability and financial market stability 
A) high employment and economic growth 
B) interest rate stability and financial market stability 
C) high employment and price level stability 
D) exchange rate stability and financial market stability

Question 7

During World War II,whenever interest rates would rise and the price of bonds would begin to fall,the Fed would

Accepted Answer

A) lower reserve requirements. 
B) raise reserve requirements. 
C) make open market purchases of government securities. 
D) make open market sales of government securities. 
A) lower reserve requirements. 
B) raise reserve requirements. 
C) make open market purchases of government securities. 
D) make open market sales of government securities.

Question 8

Explain the Taylor rule,including the formula for setting the federal funds rate target,and the components of the formula. If the Fed were to use this rule,how many goals would it use to set monetary policy?

Accepted Answer

The Taylor rule specifies that the targe

Question 9

Targeting interest rates can be procyclical because

Accepted Answer

A) an increase in income increases interest rates,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
B) an increase in interest rates increases income,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
C) an increase in the monetary base increases the money supply,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
D) an increase in income increases the monetary base and money supply,causing the Fed to buy bonds to increase interest rates and income. 
A) an increase in income increases interest rates,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
B) an increase in interest rates increases income,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
C) an increase in the monetary base increases the money supply,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income. 
D) an increase in income increases the monetary base and money supply,causing the Fed to buy bonds to increase interest rates and income.

Question 10

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the

Accepted Answer

A) frictional level of unemployment. 
B) structural level of unemployment. 
C) natural rate level of unemployment. 
D) Keynesian rate level of unemployment. 
A) frictional level of unemployment. 
B) structural level of unemployment. 
C) natural rate level of unemployment. 
D) Keynesian rate level of unemployment.

Question 11

The Fed was committed to keeping interest rates low to assist Treasury financing of budget deficits

Accepted Answer

A) only during World War I. 
B) during the Great Depression. 
C) during World War I and World War II. 
D) throughout the entire existence of the Fed. 
A) only during World War I. 
B) during the Great Depression. 
C) during World War I and World War II. 
D) throughout the entire existence of the Fed.

Question 12

The first country to adopt inflation targeting was

Accepted Answer

A) the United Kingdom. 
B) Canada. 
C) New Zealand. 
D) Australia. 
A) the United Kingdom. 
B) Canada. 
C) New Zealand. 
D) Australia.

Question 13

The type of monetary policy regime that the Federal Reserve has followed From the 1980s up until the time Ben Bernanke became chair of the Federal Reserve in 2006 can best be described as

Accepted Answer

A) monetary targeting. 
B) inflation targeting. 
C) policy with an implicit nominal anchor. 
D) exchange-rate targeting. 
A) monetary targeting. 
B) inflation targeting. 
C) policy with an implicit nominal anchor. 
D) exchange-rate targeting.

Question 14

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

Accepted Answer

A) The effect of increasing interest rates on asset prices is uncertain. 
B) A bubble may only exist in some asset-prices and monetary policy will affect all asset prices. 
C) Using monetary policy to prick an asset-price bubble may have adverse effect on the aggregate economy. 
D) Even though credit-drive bubbles are easier to identify,they are still relatively hard to identify. 
A) The effect of increasing interest rates on asset prices is uncertain. 
B) A bubble may only exist in some asset-prices and monetary policy will affect all asset prices. 
C) Using monetary policy to prick an asset-price bubble may have adverse effect on the aggregate economy. 
D) Even though credit-drive bubbles are easier to identify,they are still relatively hard to identify.

Question 15

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Accepted Answer

A) countercyclical monetary policy. 
B) too slow growth in M1 throughout the decade. 
C) procyclical monetary policy. 
D) too rapid growth in M1 throughout the decade. 
A) countercyclical monetary policy. 
B) too slow growth in M1 throughout the decade. 
C) procyclical monetary policy. 
D) too rapid growth in M1 throughout the decade.

Question 16

Which of the following is not an advantage of inflation targeting?

Accepted Answer

A) reduction of the time-inconsistency problem 
B) increased monetary policy transparency 
C) There is an immediate signal on the achievement of the target. 
D) consistency with democratic principles 
A) reduction of the time-inconsistency problem 
B) increased monetary policy transparency 
C) There is an immediate signal on the achievement of the target. 
D) consistency with democratic principles

Question 17

In the 1970s,the Fed selected an interest rate as an operating target rather than a reserve aggregate primarily because it

Accepted Answer

A) had no interest in targeting a monetary aggregate,as evidenced by its unwillingness to target a reserve aggregate. 
B) was still very concerned with achieving interest rate stability. 
C) was committed to targeting free reserves. 
D) was committed to the real bills doctrine. 
A) had no interest in targeting a monetary aggregate,as evidenced by its unwillingness to target a reserve aggregate. 
B) was still very concerned with achieving interest rate stability. 
C) was committed to targeting free reserves. 
D) was committed to the real bills doctrine.

Question 18

The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate.

Accepted Answer

A) primary 
B) dual 
C) secondary 
D) hierarchical 
A) primary 
B) dual 
C) secondary 
D) hierarchical

Question 19

Real interest rates are difficult to measure because

Accepted Answer

A) data on them are not available in a timely manner. 
B) real interest rates depend on the hard-to-determine expected inflation rate. 
C) they fluctuate too often to be accurate. 
D) they cannot be controlled by the Fed. 
A) data on them are not available in a timely manner. 
B) real interest rates depend on the hard-to-determine expected inflation rate. 
C) they fluctuate too often to be accurate. 
D) they cannot be controlled by the Fed.

Question 20

Which of the following is not a disadvantage of of the Fed's "just do it" approach to monetary policy?

Accepted Answer

A) There is low transparency of policy. 
B) There is low accountability for central bankers. 
C) This type of policy make the Fed more susceptible to the time-inconsistency problem. 
D) It relies on a stable money-inflation relationship. 
A) There is low transparency of policy. 
B) There is low accountability for central bankers. 
C) This type of policy make the Fed more susceptible to the time-inconsistency problem. 
D) It relies on a stable money-inflation relationship.

Exam 16: The Conduct of Monetary Policy: Strategy and Tactics

During the years 1979 to 1982,the Federal Reserve's announced policy was monetary targeting. During this time period the Federal Reserve

After Ben Bernanke became chair of the Fed in 2006,he

Using Taylor's rule,when the equilibrium real federal funds rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal federal funds rate target should be

Which set of goals can,at times,conflict in the short run?

During World War II,whenever interest rates would rise and the price of bonds would begin to fall,the Fed would

Explain the Taylor rule,including the formula for setting the federal funds rate target,and the components of the formula. If the Fed were to use this rule,how many goals would it use to set monetary policy?

Targeting interest rates can be procyclical because

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the

The Fed was committed to keeping interest rates low to assist Treasury financing of budget deficits

The first country to adopt inflation targeting was

The type of monetary policy regime that the Federal Reserve has followed From the 1980s up until the time Ben Bernanke became chair of the Federal Reserve in 2006 can best be described as

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Which of the following is not an advantage of inflation targeting?

In the 1970s,the Fed selected an interest rate as an operating target rather than a reserve aggregate primarily because it

The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate.

Real interest rates are difficult to measure because

Which of the following is not a disadvantage of of the Fed's "just do it" approach to monetary policy?

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

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