Question 1

Bonds cannot have yields less than zero because:

Accepted Answer

A) the U.S.treasury guarantees all bonds to have a positive yield. 
B) the banking technology does not exist to deal with negative yields. 
C) people can always hold cash. 
D) all of the answers given are correct. 
A) the U.S.treasury guarantees all bonds to have a positive yield. 
B) the banking technology does not exist to deal with negative yields. 
C) people can always hold cash. 
D) all of the answers given are correct.

Question 2

How did lax financial institution regulation in the 1990s actually contribute to the long recession in Japan and the ineffectiveness of expansionary monetary policy?

Accepted Answer

Monetary policymakers cut nominal short-

Question 3

The Federal Reserve's surveys of bank loan officers contain questions about:

Accepted Answer

A) the interest rates being charged. 
B) the supply of and demand for loans. 
C) the quantity and quality of loans. 
D) all of the answers given are correct. 
A) the interest rates being charged. 
B) the supply of and demand for loans. 
C) the quantity and quality of loans. 
D) all of the answers given are correct.

Question 4

Why can't the nominal interest rate be negative?

Accepted Answer

Investors can always hold cash.Since cas

Question 5

Monetary policy in Japan during the 1990s was:

Accepted Answer

A) highly effective at stemming the recession that occurred. 
B) not used, policymakers preferring fiscal policy. 
C) for the most part short-circuited by poor health of financial institutions. 
D) responsible for the recession. 
A) highly effective at stemming the recession that occurred. 
B) not used, policymakers preferring fiscal policy. 
C) for the most part short-circuited by poor health of financial institutions. 
D) responsible for the recession.

Question 6

Each of the following can contribute to the change in the supply of loans resulting from an interest rate change, except:

Accepted Answer

A) changes in the percentage of loan payment to income. 
B) changes in the potential of moral hazard. 
C) changes in borrowers' net worth. 
D) increases in the demand for loans. 
A) changes in the percentage of loan payment to income. 
B) changes in the potential of moral hazard. 
C) changes in borrowers' net worth. 
D) increases in the demand for loans.

Question 7

Each of the following is a transmission channel of monetary policy, except:

Accepted Answer

A) the balance-sheet channel. 
B) the tax-impact channel. 
C) the asset-price channel. 
D) the exchange-rate channel. 
A) the balance-sheet channel. 
B) the tax-impact channel. 
C) the asset-price channel. 
D) the exchange-rate channel.

Question 8

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

Accepted Answer

When interest rates increase it becomes

Question 9

Explain why a corporation may find it advantageous to undertake greater investment when the value of its stock shares increase.

Accepted Answer

If the share price of a firm's stock inc

Question 10

Why is it more correct to say that there may be correlation between high interest rates and the growth rate of output but there is no clear causation?

Accepted Answer

Correlation implies that two variables m

Question 11

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

Accepted Answer

A) quick rebound in the willingness and ability of banks to make loans. 
B) further slowdown in bank lending. 
C) period of rapid economic growth in the early 1990s. 
D) prolonged economic slowdown lasting much of the 1990s. 
A) quick rebound in the willingness and ability of banks to make loans. 
B) further slowdown in bank lending. 
C) period of rapid economic growth in the early 1990s. 
D) prolonged economic slowdown lasting much of the 1990s.

Question 12

If the target federal funds rate reaches zero the FOMC:

Accepted Answer

A) must stop purchasing securities since they cannot lower nominal rates below zero. 
B) would likely shift their focus to purchasing longer-term securities. 
C) would likely raise the required reserve rate. 
D) would likely raise the discount rate. 
A) must stop purchasing securities since they cannot lower nominal rates below zero. 
B) would likely shift their focus to purchasing longer-term securities. 
C) would likely raise the required reserve rate. 
D) would likely raise the discount rate.

Question 13

One of the limiting factors for using monetary policy is:

Accepted Answer

A) the central banks are limited in their ability to print money. 
B) central banks are limited in their ability to make loans. 
C) there is a lower nominal-interest-rate bound of zero. 
D) the real interest rate cannot fall below zero. 
A) the central banks are limited in their ability to print money. 
B) central banks are limited in their ability to make loans. 
C) there is a lower nominal-interest-rate bound of zero. 
D) the real interest rate cannot fall below zero.

Question 14

Stock prices may rise from a reduction in interest rates because:

Accepted Answer

A) consumer and business confidence about future growth improves. 
B) stockholders will expect lower future earnings. 
C) financial market participants are less optimistic about future earnings. 
D) the present value of future earnings will decrease. 
A) consumer and business confidence about future growth improves. 
B) stockholders will expect lower future earnings. 
C) financial market participants are less optimistic about future earnings. 
D) the present value of future earnings will decrease.

Question 15

An open market sale of securities by the central bank to banks usually will:

Accepted Answer

A) diminish the inclination of banks to make loans. 
B) induce the banks to make more loans since their revenue will decrease if they do nothing. 
C) increase the amount of deposits in the banking system. 
D) increase the banks' willingness and ability to make loans. 
A) diminish the inclination of banks to make loans. 
B) induce the banks to make more loans since their revenue will decrease if they do nothing. 
C) increase the amount of deposits in the banking system. 
D) increase the banks' willingness and ability to make loans.

Question 16

The interest-rate channel of monetary policy transmission appears to be:

Accepted Answer

A) weak because the investment component of total spending isn't very sensitive to interest rates. 
B) weak because the investment component of total spending is very sensitive to interest rates. 
C) strong because the investment component of total spending isn't very sensitive to interest rates. 
D) strong because the investment component of total spending is very sensitive to interest rates. 
A) weak because the investment component of total spending isn't very sensitive to interest rates. 
B) weak because the investment component of total spending is very sensitive to interest rates. 
C) strong because the investment component of total spending isn't very sensitive to interest rates. 
D) strong because the investment component of total spending is very sensitive to interest rates.

Question 17

Monetary policymakers could keep equity and property price bubbles from developing by:

Accepted Answer

A) raising their interest rate target when they suspect a bubble. 
B) lowering their interest rate target when they suspect a bubble. 
C) expanding the money supply in the economy. 
D) purchasing U.S.treasury securities to drive up their prices. 
A) raising their interest rate target when they suspect a bubble. 
B) lowering their interest rate target when they suspect a bubble. 
C) expanding the money supply in the economy. 
D) purchasing U.S.treasury securities to drive up their prices.

Question 18

Suppose that the overnight interest rate falls to zero and output is below potential output.A central bank could:

Accepted Answer

A) seek to reduce expectations of future policy rates. 
B) use its balance sheet to expand the monetary base. 
C) purchase securities of different maturities to affect their market prices and rates. 
D) all of the answers given are correct. 
A) seek to reduce expectations of future policy rates. 
B) use its balance sheet to expand the monetary base. 
C) purchase securities of different maturities to affect their market prices and rates. 
D) all of the answers given are correct.

Question 19

If the target federal funds rate reaches zero:

Accepted Answer

A) the FOMC would run out of policy options. 
B) monetary policy would no longer be of use. 
C) the FOMC would turn to unconventional measures, such as forward guidance. 
D) the FOMC would simply reset the target. 
A) the FOMC would run out of policy options. 
B) monetary policy would no longer be of use. 
C) the FOMC would turn to unconventional measures, such as forward guidance. 
D) the FOMC would simply reset the target.

Question 20

During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers.Which of the following contributing to this lack of response?

Accepted Answer

A) Many banks were actually insolvent 
B) The Japanese stock market collapsed 
C) Property values fell dramatically 
D) All of the answers given are correct 
A) Many banks were actually insolvent 
B) The Japanese stock market collapsed 
C) Property values fell dramatically 
D) All of the answers given are correct

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

Bonds cannot have yields less than zero because:

How did lax financial institution regulation in the 1990s actually contribute to the long recession in Japan and the ineffectiveness of expansionary monetary policy?

The Federal Reserve's surveys of bank loan officers contain questions about:

Why can't the nominal interest rate be negative?

Monetary policy in Japan during the 1990s was:

Each of the following can contribute to the change in the supply of loans resulting from an interest rate change, except:

Each of the following is a transmission channel of monetary policy, except:

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

Explain why a corporation may find it advantageous to undertake greater investment when the value of its stock shares increase.

Why is it more correct to say that there may be correlation between high interest rates and the growth rate of output but there is no clear causation?

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

If the target federal funds rate reaches zero the FOMC:

One of the limiting factors for using monetary policy is:

Stock prices may rise from a reduction in interest rates because:

An open market sale of securities by the central bank to banks usually will:

The interest-rate channel of monetary policy transmission appears to be:

Monetary policymakers could keep equity and property price bubbles from developing by:

Suppose that the overnight interest rate falls to zero and output is below potential output.A central bank could:

If the target federal funds rate reaches zero:

During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers.Which of the following contributing to this lack of response?

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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