Question 1

The movement away from bank lending towards asset-backed securities has:

Accepted Answer

A) increased the importance of the bank-lending channel of monetary policy. 
B) eliminated the bank-lending channel as a mechanism for monetary policy. 
C) decreased the importance of the bank-lending channel. 
D) led the FOMC to abandon interest-rate targets. 
A) increased the importance of the bank-lending channel of monetary policy. 
B) eliminated the bank-lending channel as a mechanism for monetary policy. 
C) decreased the importance of the bank-lending channel. 
D) led the FOMC to abandon interest-rate targets.

Question 2

Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

Accepted Answer

Primarily lack of experience with them.E

Question 3

Decreases in the real interest rate will result in a(n):

Accepted Answer

A) increase in net exports because it will lead to a depreciation of the dollar. 
B) decrease in net exports because it will lead to a depreciation of the dollar. 
C) increase in net exports because it will lead to an appreciation of the dollar. 
D) decrease in net exports because it will lead to an appreciation of the dollar. 
A) increase in net exports because it will lead to a depreciation of the dollar. 
B) decrease in net exports because it will lead to a depreciation of the dollar. 
C) increase in net exports because it will lead to an appreciation of the dollar. 
D) decrease in net exports because it will lead to an appreciation of the dollar.

Question 4

Between January and November of 2001, the FOMC reduced the target federal funds rate from 6½ to 1¾.A reason for this was that the FOMC:

Accepted Answer

A) was acting preemptively. 
B) feared over stimulating the economy. 
C) was taking a wait and see approach to previous cuts. 
D) was feeling political pressure to act. 
A) was acting preemptively. 
B) feared over stimulating the economy. 
C) was taking a wait and see approach to previous cuts. 
D) was feeling political pressure to act.

Question 5

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

Accepted Answer

The arguments for intervention include t

Question 6

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 7

The fact that investors can always hold cash creates:

Accepted Answer

A) a problem for monetary policymakers when the short-term interest rates approach zero. 
B) an opportunity for the U.S.treasury to issue bonds that actually have negative nominal interest rates. 
C) an upward bound on nominal interest rates. 
D) negative nominal interest rates. 
A) a problem for monetary policymakers when the short-term interest rates approach zero. 
B) an opportunity for the U.S.treasury to issue bonds that actually have negative nominal interest rates. 
C) an upward bound on nominal interest rates. 
D) negative nominal interest rates.

Question 8

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

Accepted Answer

A) Canada 
B) United Kingdom 
C) Japan 
D) Turkey 
A) Canada 
B) United Kingdom 
C) Japan 
D) Turkey

Question 9

The challenges facing policymakers today include each of the following, except:

Accepted Answer

A) the economy's sustainable growth rate is highly stable. 
B) nominal interest rates cannot fall below zero. 
C) stock and property values are subject to booms and busts. 
D) the structure of the economy and financial system continues to evolve. 
A) the economy's sustainable growth rate is highly stable. 
B) nominal interest rates cannot fall below zero. 
C) stock and property values are subject to booms and busts. 
D) the structure of the economy and financial system continues to evolve.

Question 10

Why did the FOMC cut the target federal funds rate so aggressively between January and November of 2001 when most measures of economic activity showed that the economy was already rebounding from the recession earlier in the year?

Accepted Answer

This was an example of the Fed acting pr

Question 11

Explain why a lowering of interest rates should raise stock prices.

Accepted Answer

The price of a stock reflects the net pr

Question 12

The Japanese experience of the 1990s shows:

Accepted Answer

A) monetary policy is always more effective than fiscal policy. 
B) monetary policy always works. 
C) sometimes monetary policy does not work. 
D) central bankers should not try to counter the business cycle. 
A) monetary policy is always more effective than fiscal policy. 
B) monetary policy always works. 
C) sometimes monetary policy does not work. 
D) central bankers should not try to counter the business cycle.

Question 13

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 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

When equity and property prices collapse (bust), bank balance sheets are impaired because:

Accepted Answer

A) banks hold a lot of corporate stocks. 
B) banks own a lot of property outright. 
C) the collateral that is backing many of the loans banks have made is now worth less. 
D) banks hold a lot of corporate stocks and they also own a lot of property outright. 
A) banks hold a lot of corporate stocks. 
B) banks own a lot of property outright. 
C) the collateral that is backing many of the loans banks have made is now worth less. 
D) banks hold a lot of corporate stocks and they also own a lot of property outright.

Question 16

Some people who believe monetary policymakers should not address equity and property price bubbles argue their position based on:

Accepted Answer

A) their belief that government should stay out of private matters. 
B) the policymakers lack experience with financial markets. 
C) price bubbles are virtually impossible to identify when they are developing. 
D) all of the answers given are correct. 
A) their belief that government should stay out of private matters. 
B) the policymakers lack experience with financial markets. 
C) price bubbles are virtually impossible to identify when they are developing. 
D) all of the answers given are correct.

Question 17

Increases in the real interest rate will result in a(n):

Accepted Answer

A) increase in net exports because it will lead to a depreciation of the dollar. 
B) decrease in net exports because it will lead to a depreciation of the dollar. 
C) increase in net exports because it will lead to an appreciation of the dollar. 
D) decrease in net exports because it will lead to an appreciation of the dollar. 
A) increase in net exports because it will lead to a depreciation of the dollar. 
B) decrease in net exports because it will lead to a depreciation of the dollar. 
C) increase in net exports because it will lead to an appreciation of the dollar. 
D) decrease in net exports because it will lead to an appreciation of the dollar.

Question 18

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 19

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 20

The movement away from bank lending towards asset-backed securities:

Accepted Answer

A) has increased the importance of the bank-lending channel of monetary policy. 
B) has eliminated the bank-lending channel as a mechanism for monetary policy. 
C) has not affected the importance of the bank-lending channel. 
D) will require the FOMC to rethink the quantitative impact of changing the target federal funds rate. 
A) has increased the importance of the bank-lending channel of monetary policy. 
B) has eliminated the bank-lending channel as a mechanism for monetary policy. 
C) has not affected the importance of the bank-lending channel. 
D) will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.

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

The movement away from bank lending towards asset-backed securities has:

Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

Decreases in the real interest rate will result in a(n):

Between January and November of 2001, the FOMC reduced the target federal funds rate from 6½ to 1¾.A reason for this was that the FOMC:

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

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?

The fact that investors can always hold cash creates:

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

The challenges facing policymakers today include each of the following, except:

Why did the FOMC cut the target federal funds rate so aggressively between January and November of 2001 when most measures of economic activity showed that the economy was already rebounding from the recession earlier in the year?

Explain why a lowering of interest rates should raise stock prices.

The Japanese experience of the 1990s shows:

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:

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

When equity and property prices collapse (bust), bank balance sheets are impaired because:

Some people who believe monetary policymakers should not address equity and property price bubbles argue their position based on:

Increases in the real interest rate will result in a(n):

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

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?

The movement away from bank lending towards asset-backed securities:

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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