Question 1

During the 1950s,the Fed targeted

Accepted Answer

A) M1. 
B) M2. 
C) the monetary base. 
D) money market conditions. 
A) M1. 
B) M2. 
C) the monetary base. 
D) money market conditions.

Question 2

When asset prices increase above their fundamental values it is called an

Accepted Answer

A) asset-price bubble. 
B) irrational bubble. 
C) asset-price spike. 
D) irrational spike. 
A) asset-price bubble. 
B) irrational bubble. 
C) asset-price spike. 
D) irrational spike.

Question 3

The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future.

Accepted Answer

A) moral hazard 
B) time-inconsistency 
C) nominal-anchor 
D) rational-expectation 
A) moral hazard 
B) time-inconsistency 
C) nominal-anchor 
D) rational-expectation

Question 4

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 5

Estimates from large macroeconometric models of the U.S.economy suggests that it takes over ________ for monetary policy to affect output and over ________ for monetary policy to affect the inflation rate.

Accepted Answer

A) 1 year;2 years 
B) 2 years;1 year 
C) 1 year;6 months 
D) 6 months;1 year 
A) 1 year;2 years 
B) 2 years;1 year 
C) 1 year;6 months 
D) 6 months;1 year

Question 6

Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the

Accepted Answer

A) monetary base. 
B) money supply. 
C) federal funds interest rate. 
D) exchange rate. 
A) monetary base. 
B) money supply. 
C) federal funds interest rate. 
D) exchange rate.

Question 7

A central bank has ________ chance to identify a credit-driven bubble compared to an irrational exuberance bubble.

Accepted Answer

A) a greater 
B) less of a 
C) about the same level of a 
D) a greater,less or about the same level of a 
A) a greater 
B) less of a 
C) about the same level of a 
D) a greater,less or about the same level of a

Question 8

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 9

The Fed can engage in preemptive strikes against a rise in inflation by ________ the federal funds interest rate;it can act preemptively against negative demand shocks by ________ the federal funds interest rate.

Accepted Answer

A) raising;lowering 
B) raising;raising 
C) lowering;lowering 
D) lowering;raising 
A) raising;lowering 
B) raising;raising 
C) lowering;lowering 
D) lowering;raising

Question 10

The FOMC finally moved to ________ on January 25,2012,when it issued its "Statement on Long-Run Goals and Monetary Policy Strategy."

Accepted Answer

A) inflation targeting 
B) zero inflation policy 
C) "just do it" policy 
D) monetary targeting 
A) inflation targeting 
B) zero inflation policy 
C) "just do it" policy 
D) monetary targeting

Question 11

Which of the following is a disadvantage to monetary targeting?

Accepted Answer

A) It relies on a stable money-inflation relationship. 
B) There is a delayed signal about the achievement of a target. 
C) It implies larger output fluctuations. 
D) It implies a lack of transparency. 
A) It relies on a stable money-inflation relationship. 
B) There is a delayed signal about the achievement of a target. 
C) It implies larger output fluctuations. 
D) It implies a lack of transparency.

Question 12

Fluctuations in the demand for reserves cause the Fed to lose control over a monetary aggregate if the Fed targets

Accepted Answer

A) a monetary aggregate. 
B) the monetary base. 
C) an interest rate. 
D) nominal GDP. 
A) a monetary aggregate. 
B) the monetary base. 
C) an interest rate. 
D) nominal GDP.

Question 13

The problems of raising the level of the inflation target include

Accepted Answer

A) if the zero-lower-bound problem is rare,then the benefits of a higher inflation target are not very large. 
B) the costs of higher inflation in terms of the distortions it produces in the economy are high. 
C) it is more difficult to stabilize the inflation rate at a higher targeting level. 
D) all of the above. 
A) if the zero-lower-bound problem is rare,then the benefits of a higher inflation target are not very large. 
B) the costs of higher inflation in terms of the distortions it produces in the economy are high. 
C) it is more difficult to stabilize the inflation rate at a higher targeting level. 
D) all of the above.

Question 14

If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent

Accepted Answer

A) fluctuations of nonborrowed reserves will be small. 
B) fluctuations of nonborrowed reserves will be large. 
C) the Fed will probably quickly abandon this policy,as it did in the 1960s. 
D) the Fed will probably quickly abandon this policy,as it did in the 1950s. 
A) fluctuations of nonborrowed reserves will be small. 
B) fluctuations of nonborrowed reserves will be large. 
C) the Fed will probably quickly abandon this policy,as it did in the 1960s. 
D) the Fed will probably quickly abandon this policy,as it did in the 1950s.

Question 15

Which of the following is an advantage to money targeting?

Accepted Answer

A) There is an immediate signal on the achievement of the target. 
B) It does not rely on a stable money-inflation relationship. 
C) It implies lack of transparency. 
D) It implies smaller output fluctuations. 
A) There is an immediate signal on the achievement of the target. 
B) It does not rely on a stable money-inflation relationship. 
C) It implies lack of transparency. 
D) It implies smaller output fluctuations.

Question 16

The Fed's use of the ________ as an operating target in the 1970s resulted in ________ monetary policy.

Accepted Answer

A) federal funds rate;countercyclical 
B) federal funds rate;procyclical 
C) M1 money supply;countercyclical 
D) M1 money supply;procyclical 
A) federal funds rate;countercyclical 
B) federal funds rate;procyclical 
C) M1 money supply;countercyclical 
D) M1 money supply;procyclical

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

During the 1950s,the Fed targeted

When asset prices increase above their fundamental values it is called an

The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future.

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?

Estimates from large macroeconometric models of the U.S.economy suggests that it takes over ________ for monetary policy to affect output and over ________ for monetary policy to affect the inflation rate.

Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the

A central bank has ________ chance to identify a credit-driven bubble compared to an irrational exuberance bubble.

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

The Fed can engage in preemptive strikes against a rise in inflation by ________ the federal funds interest rate;it can act preemptively against negative demand shocks by ________ the federal funds interest rate.

The FOMC finally moved to ________ on January 25,2012,when it issued its "Statement on Long-Run Goals and Monetary Policy Strategy."

Which of the following is a disadvantage to monetary targeting?

Fluctuations in the demand for reserves cause the Fed to lose control over a monetary aggregate if the Fed targets

The problems of raising the level of the inflation target include

If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent

Which of the following is an advantage to money targeting?

The Fed's use of the ________ as an operating target in the 1970s resulted in ________ 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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

Filters

Estimates from large macroeconometric models of the U.S.economy suggests that it takes over for monetary policy to affect output and over for monetary policy to affect the inflation rate.

The Fed can engage in preemptive strikes against a rise in inflation by the federal funds interest rate;it can act preemptively against negative demand shocks by the federal funds interest rate.

The Fed's use of the as an operating target in the 1970s resulted in monetary policy.