Question 1

The main purpose of reserve requirements today is to:

Accepted Answer

A) decrease the demand for reserves. 
B) make sure depositors can withdraw currency on demand. 
C) enable the FOMC to keep the market federal funds rate closer to the target reserve rate. 
D) keep banks sound. 
A) decrease the demand for reserves. 
B) make sure depositors can withdraw currency on demand. 
C) enable the FOMC to keep the market federal funds rate closer to the target reserve rate. 
D) keep banks sound.

Question 2

Why is it necessary to distinguish between the target federal funds rate and the market federal funds rate?

Accepted Answer

The need to distinguish the two comes fr

Question 3

Consider the objective of flying a jet form New York to Paris.After takeoff, a pilot would certainly check a few times to see if he or she is on course.Using this example, discuss why, at least in theory, intermediate monetary policy targets may be useful.

Accepted Answer

The Fed uses operating instruments to ho

Question 4

If the inflation rate in the economy were to fall by 2% below the target inflation rate, the target federal funds rate would:

Accepted Answer

A) Decrease by 3.0%. 
B) Remain at 2.5%. 
C) Decrease by 1.0%. 
D) Increase by 1.0%. 
A) Decrease by 3.0%. 
B) Remain at 2.5%. 
C) Decrease by 1.0%. 
D) Increase by 1.0%.

Question 5

One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:

Accepted Answer

A) reserve requirements of the ECB are at a much higher rate than the Fed's. 
B) ECB's reserve requirements are more difficult for banks to predict. 
C) reserve requirement of the ECB are determined annually. 
D) ECB reserve requirement is based on all of a bank's liabilities. 
A) reserve requirements of the ECB are at a much higher rate than the Fed's. 
B) ECB's reserve requirements are more difficult for banks to predict. 
C) reserve requirement of the ECB are determined annually. 
D) ECB reserve requirement is based on all of a bank's liabilities.

Question 6

If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

Accepted Answer

A) 6.5%. 
B) 2.5%. 
C) 3.5%. 
D) 10%. 
A) 6.5%. 
B) 2.5%. 
C) 3.5%. 
D) 10%.

Question 7

If the market federal funds rate were above the target rate, the response from the Fed would likely be to:

Accepted Answer

A) purchase U.S.Treasury securities. 
B) sell U.S.Treasury securities. 
C) lower the required reserve rate. 
D) lower the discount rate. 
A) purchase U.S.Treasury securities. 
B) sell U.S.Treasury securities. 
C) lower the required reserve rate. 
D) lower the discount rate.

Question 8

The components of the formula for the Taylor rule includes each of the following, except:

Accepted Answer

A) the target federal funds rate. 
B) the current inflation rate. 
C) the 30-year U.S.Treasury bond rate. 
D) the inflation gap. 
A) the target federal funds rate. 
B) the current inflation rate. 
C) the 30-year U.S.Treasury bond rate. 
D) the inflation gap.

Question 9

Every one percent decrease in the rate of inflation will:

Accepted Answer

A) raise the target federal funds rate by 1.5%. 
B) lower the target federal funds rate by 0.5%. 
C) lower the target federal funds rate by 1.5%. 
D) raise the target federal funds rate by 0.5%. 
A) raise the target federal funds rate by 1.5%. 
B) lower the target federal funds rate by 0.5%. 
C) lower the target federal funds rate by 1.5%. 
D) raise the target federal funds rate by 0.5%.

Question 10

The use of lagged reserve accounting makes the demand for reserves:

Accepted Answer

A) highly unpredictable. 
B) constant. 
C) more predictable. 
D) subject to daily changes by the Fed. 
A) highly unpredictable. 
B) constant. 
C) more predictable. 
D) subject to daily changes by the Fed.

Question 11

How does policy forward guidance influence the economy and inflation?

Accepted Answer

If the forward guidance is cre

Question 12

Secondary credit provided by the Fed is designed for:

Accepted Answer

A) banks who qualify for a lower interest than what is available under primary credit. 
B) banks that are in trouble and cannot obtain a loan from anyone else. 
C) banks that want to borrow without putting up collateral. 
D) foreign banks. 
A) banks who qualify for a lower interest than what is available under primary credit. 
B) banks that are in trouble and cannot obtain a loan from anyone else. 
C) banks that want to borrow without putting up collateral. 
D) foreign banks.

Question 13

We saw in Chapter 18 that many central banks have turned to a policy framework of inflation targeting.Discuss if this would be effective in a country experiencing deflation.

Accepted Answer

For a country experiencing deflation, th

Question 14

An increase in the federal funds rate should:

Accepted Answer

A) cause mortgage rates to increase by less than the increase in the federal funds rate. 
B) have an inverse impact on mortgage rates. 
C) not impact mortgage rates since the federal funds rate is a very short-term rate. 
D) cause the mortgage rates to increase by more than the increase in the federal funds rate. 
A) cause mortgage rates to increase by less than the increase in the federal funds rate. 
B) have an inverse impact on mortgage rates. 
C) not impact mortgage rates since the federal funds rate is a very short-term rate. 
D) cause the mortgage rates to increase by more than the increase in the federal funds rate.

Question 15

Within the European Central Bank, banks with excess reserves:

Accepted Answer

A) can deposit them with the ECB and earn an interest rate below the target refinancing rate. 
B) earn no interest on excess reserves, similar to the system in the U.S. 
C) must deposit the excess with the ECB's Deposit Facility. 
D) none of the above answers is correct; there are no required reserves for the ECB and so therefore no excess reserves. 
A) can deposit them with the ECB and earn an interest rate below the target refinancing rate. 
B) earn no interest on excess reserves, similar to the system in the U.S. 
C) must deposit the excess with the ECB's Deposit Facility. 
D) none of the above answers is correct; there are no required reserves for the ECB and so therefore no excess reserves.

Question 16

The measure for the actual rate of inflation used in the Taylor rule is the:

Accepted Answer

A) Personal Consumption Expenditure Index. 
B) GDP deflator. 
C) Consumer Price Index. 
D) Producer Price Index. 
A) Personal Consumption Expenditure Index. 
B) GDP deflator. 
C) Consumer Price Index. 
D) Producer Price Index.

Question 17

The Taylor rule is:

Accepted Answer

A) the monetary policy setting formula followed explicitly by the FOMC. 
B) an approximation that seeks to explain how the FOMC sets their target. 
C) an explicit tool used by the ECB but not the Fed. 
D) a rule adopted by Congress to make the Fed's monetary policy more accountable to the public. 
A) the monetary policy setting formula followed explicitly by the FOMC. 
B) an approximation that seeks to explain how the FOMC sets their target. 
C) an explicit tool used by the ECB but not the Fed. 
D) a rule adopted by Congress to make the Fed's monetary policy more accountable to the public.

Question 18

The tools of monetary policy available to the Fed include each of the following, except the:

Accepted Answer

A) currency-to-deposit ratio. 
B) discount rate. 
C) target federal funds rate. 
D) reserve requirement. 
A) currency-to-deposit ratio. 
B) discount rate. 
C) target federal funds rate. 
D) reserve requirement.

Question 19

Which of the following would be classified as intermediate targets for U.S.monetary policy?

Accepted Answer

A) M2 but not M1 
B) The federal funds rate 
C) M1 and M2 
D) M1 but not M2 
A) M2 but not M1 
B) The federal funds rate 
C) M1 and M2 
D) M1 but not M2

Question 20

What were the 3 unconventional policy approaches used by the Fed during the financial crisis of 2007-2009?

Accepted Answer

The first was declaring a commitment to

Exam 18: Monetary Policy: Stabilizing the Domestic Economy

The main purpose of reserve requirements today is to:

Why is it necessary to distinguish between the target federal funds rate and the market federal funds rate?

Consider the objective of flying a jet form New York to Paris.After takeoff, a pilot would certainly check a few times to see if he or she is on course.Using this example, discuss why, at least in theory, intermediate monetary policy targets may be useful.

If the inflation rate in the economy were to fall by 2% below the target inflation rate, the target federal funds rate would:

One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:

If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

If the market federal funds rate were above the target rate, the response from the Fed would likely be to:

The components of the formula for the Taylor rule includes each of the following, except:

Every one percent decrease in the rate of inflation will:

The use of lagged reserve accounting makes the demand for reserves:

How does policy forward guidance influence the economy and inflation?

Secondary credit provided by the Fed is designed for:

We saw in Chapter 18 that many central banks have turned to a policy framework of inflation targeting.Discuss if this would be effective in a country experiencing deflation.

An increase in the federal funds rate should:

Within the European Central Bank, banks with excess reserves:

The measure for the actual rate of inflation used in the Taylor rule is the:

The Taylor rule is:

The tools of monetary policy available to the Fed include each of the following, except the:

Which of the following would be classified as intermediate targets for U.S.monetary policy?

What were the 3 unconventional policy approaches used by the Fed during the financial crisis of 2007-2009?

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

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters