Question 1

In recent years, the Fed has made an effort to be more transparent in its communications to financial markets about its future policy.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is not a reason that a stimulative monetary policy may be ineffective?

Accepted Answer

A)  The effects of a stimulative policy may be disrupted by expectations of inflation. 
B)  Retirees who rely on interest income may restrict their spending 
C)  Lending institutions may increase their standards for borrowers, so some potential borrowers may not qualify for loans. 
D)  Higher interest rates encourage individuals to increase their savings. 
A)  The effects of a stimulative policy may be disrupted by expectations of inflation. 
B)  Retirees who rely on interest income may restrict their spending 
C)  Lending institutions may increase their standards for borrowers, so some potential borrowers may not qualify for loans. 
D)  Higher interest rates encourage individuals to increase their savings. D

Question 3

Which of the following best describes the relationship between the Fed and the presidential administration?

Accepted Answer

A)  The Fed must receive approval by the administration before conducting monetary policy. 
B)  The Fed must implement a monetary policy specifically to the support the administration's policy. 
C)  The administration must receive approval from the Fed before implementing fiscal policy. 
D)  A and C 
E)  none of the above 
A)  The Fed must receive approval by the administration before conducting monetary policy. 
B)  The Fed must implement a monetary policy specifically to the support the administration's policy. 
C)  The administration must receive approval from the Fed before implementing fiscal policy. 
D)  A and C 
E)  none of the above A

Question 4

A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.

Accepted Answer

A)  U.S. exports; U.S. imports; weaken 
B)  U.S. exports; U.S. imports; stimulate 
C)  U.S. imports; U.S. exports; stimulate 
D)  none of the above 
A)  U.S. exports; U.S. imports; weaken 
B)  U.S. exports; U.S. imports; stimulate 
C)  U.S. imports; U.S. exports; stimulate 
D)  none of the above

Question 5

A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.

Accepted Answer

A)  increase; decrease 
B)  decrease; decrease 
C)  increase; increase 
D)  decrease; increase 
A)  increase; decrease 
B)  decrease; decrease 
C)  increase; increase 
D)  decrease; increase

Question 6

The time between when the Fed adjusts the money supply and when the adjustment has an effect on the economy is the

Accepted Answer

A)  recognition lag. 
B)  implementation lag. 
C)  impact lag. 
D)  open-market lag. 
A)  recognition lag. 
B)  implementation lag. 
C)  impact lag. 
D)  open-market lag.

Question 7

The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a disadvantage of inflation targeting?

Accepted Answer

A)  If the U.S. inflation rate deviates substantially from the Fed's target inflation rate, the Fed could lose credibility. 
B)  The Fed's focus on inflation could result in a much higher unemployment level. 
C)  The Fed's focus on inflation could result in much higher interest rates, which would discourage economic growth. 
D)  All of the above are disadvantages of inflation targeting. 
A)  If the U.S. inflation rate deviates substantially from the Fed's target inflation rate, the Fed could lose credibility. 
B)  The Fed's focus on inflation could result in a much higher unemployment level. 
C)  The Fed's focus on inflation could result in much higher interest rates, which would discourage economic growth. 
D)  All of the above are disadvantages of inflation targeting.

Question 9

Inflation is commonly the result of a

Accepted Answer

A)  large budget deficit. 
B)  high level of interest rates. 
C)  high level of unemployment. 
D)  high level of aggregate demand. 
A)  large budget deficit. 
B)  high level of interest rates. 
C)  high level of unemployment. 
D)  high level of aggregate demand.

Question 10

An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.

Accepted Answer

A) True 
 B)False

Question 11

A loose-money policy tends to ____ economic growth and ____ the inflation rate.

Accepted Answer

A)  stimulate; place downward pressure on 
B)  stimulate; place upward pressure on 
C)  dampen; place upward pressure on 
D)  dampen; place downward pressure on 
A)  stimulate; place downward pressure on 
B)  stimulate; place upward pressure on 
C)  dampen; place upward pressure on 
D)  dampen; place downward pressure on

Question 12

The time lag between when an economic problem arises and when it is reported in economic statistics is the

Accepted Answer

A)  recognition lag. 
B)  implementation lag. 
C)  impact lag. 
D)  open-market lag. 
A)  recognition lag. 
B)  implementation lag. 
C)  impact lag. 
D)  open-market lag.

Question 13

Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:

Accepted Answer

A)  purchases Treasury securities. 
B)  maintains a stable money supply. 
C)  uses a tight-money policy. 
D)  uses a loose-money policy. 
A)  purchases Treasury securities. 
B)  maintains a stable money supply. 
C)  uses a tight-money policy. 
D)  uses a loose-money policy.

Question 14

Which of the following was not true of the eurozone during the Greek crisis?

Accepted Answer

A)  Fear of a financial crisis throughout Europe discouraged investors and firms from moving funds into Europe. 
B)  By using a more stimulative monetary policy than it desired, the European Central Bank aroused concerns about potential inflation in the eurozone. 
C)  There was concern that the austerity conditions could weaken the country's economy further. 
D)  Greece, Spain, and Portugal focused their efforts on reducing tax rates in order to stimulate their economies. 
A)  Fear of a financial crisis throughout Europe discouraged investors and firms from moving funds into Europe. 
B)  By using a more stimulative monetary policy than it desired, the European Central Bank aroused concerns about potential inflation in the eurozone. 
C)  There was concern that the austerity conditions could weaken the country's economy further. 
D)  Greece, Spain, and Portugal focused their efforts on reducing tax rates in order to stimulate their economies.

Question 15

Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are ____ affected when the Fed____ interest rates.

Accepted Answer

A)  unfavorably; decreases 
B)  unfavorably; increases 
C)  favorably; increases 
D)  A and C are correct. 
A)  unfavorably; decreases 
B)  unfavorably; increases 
C)  favorably; increases 
D)  A and C are correct.

Question 16

Which of the following is not an effect of a stimulative monetary policy?

Accepted Answer

A)  The risk-free rate and the credit risk premium increase. 
B)  A firm's cost of debt decreases. 
C)  A firm's cost of equity decreases. 
D)  Depository institutions experience an increase in their supply of funds. 
A)  The risk-free rate and the credit risk premium increase. 
B)  A firm's cost of debt decreases. 
C)  A firm's cost of equity decreases. 
D)  Depository institutions experience an increase in their supply of funds.

Question 17

The Fed's purchase of Treasury securities is primarily intended to ensure liquidity in the commercial paper market.

Accepted Answer

A) True 
 B)False

Question 18

Global crowding out is described in the text to mean the impact of

Accepted Answer

A)  excessive U.S. population growth on interest rates. 
B)  excessive global population growth on interest rates. 
C)  an excessive budget deficit in one country on interest rates of another country. 
D)  an excessive budget deficit in one country on exchange rates. 
A)  excessive U.S. population growth on interest rates. 
B)  excessive global population growth on interest rates. 
C)  an excessive budget deficit in one country on interest rates of another country. 
D)  an excessive budget deficit in one country on exchange rates.

Question 19

Which of the following is true about an increase in the U.S. government's budget deficit?

Accepted Answer

A)  It will lead to global crowding out if U.S. interest rates fall below the level of interest rates in other countries. 
B)  It will cause outflows of foreign funds from the United States as foreign investors move their funds to other countries. 
C)  It will cause an inward shift in the aggregate demand for funds curve. 
D)  None of the above 
A)  It will lead to global crowding out if U.S. interest rates fall below the level of interest rates in other countries. 
B)  It will cause outflows of foreign funds from the United States as foreign investors move their funds to other countries. 
C)  It will cause an inward shift in the aggregate demand for funds curve. 
D)  None of the above

Question 20

During the 2008-2015 period, the Fed reduced the federal funds rate to 6 percent in an effort to stimulate the economy.

Accepted Answer

A) True 
 B)False

Exam 5: Monetary Policy

In recent years, the Fed has made an effort to be more transparent in its communications to financial markets about its future policy.

Which of the following is not a reason that a stimulative monetary policy may be ineffective?

Which of the following best describes the relationship between the Fed and the presidential administration?

A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.

A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.

The time between when the Fed adjusts the money supply and when the adjustment has an effect on the economy is the

The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.

Which of the following is not a disadvantage of inflation targeting?

Inflation is commonly the result of a

An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.

A loose-money policy tends to ____ economic growth and ____ the inflation rate.

The time lag between when an economic problem arises and when it is reported in economic statistics is the

Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:

Which of the following was not true of the eurozone during the Greek crisis?

Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are ____ affected when the Fed____ interest rates.

Which of the following is not an effect of a stimulative monetary policy?

The Fed's purchase of Treasury securities is primarily intended to ensure liquidity in the commercial paper market.

Global crowding out is described in the text to mean the impact of

Which of the following is true about an increase in the U.S. government's budget deficit?

During the 2008-2015 period, the Fed reduced the federal funds rate to 6 percent in an effort to stimulate the economy.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

A weak dollar would stimulate , discourage , and the U.S. economy.

A purchase of Treasury securities by the Fed leads to a(n) in interest rates and a(n) in the level of business investment.

A loose-money policy tends to economic growth and the inflation rate.

Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are affected when the Fed interest rates.