Question 1

The European equivalent of the U.S.'s market federal funds rate is called the:

Accepted Answer

A) overnight cash rate. 
B) target refinancing rate. 
C) European discount rate. 
D) overnight repurchase rate. 
A) overnight cash rate. 
B) target refinancing rate. 
C) European discount rate. 
D) overnight repurchase rate.

Question 2

Which of the following features would characterize a good monetary policy instrument?

Accepted Answer

A) observable only to monetary policy officials. 
B) tightly linked to monetary policy objectives. 
C) controllable and rigid. 
D) difficult to change. 
A) observable only to monetary policy officials. 
B) tightly linked to monetary policy objectives. 
C) controllable and rigid. 
D) difficult to change.

Question 3

Why does the Federal Funds rate face a zero bound?

Accepted Answer

Banks can always hold cash, wh

Question 4

State and briefly define the tools of monetary policy available to the Federal Reserve.

Accepted Answer

The tools are: (1) the target federal fu

Question 5

Discuss what experience concerning required reserves occurred during the Great Depression that contributes to the decision today not to use required reserves as an active tool of monetary policy.

Accepted Answer

Following the banking crisis of the earl

Question 6

Is the Taylor rule the specific formula followed by the FOMC? Explain.

Accepted Answer

The simple answer is no, the FOMC does n

Question 7

During the 1990s many countries developed a monetary policy framework that focused on inflation targeting.This is an example of policymakers:

Accepted Answer

A) focusing exclusively on an intermediate target. 
B) bypassing intermediate targets and focusing directly on an objective. 
C) focusing on multiple numerical targets. 
D) developing a new intermediate target. 
A) focusing exclusively on an intermediate target. 
B) bypassing intermediate targets and focusing directly on an objective. 
C) focusing on multiple numerical targets. 
D) developing a new intermediate target.

Question 8

Inflation targeting does all of the following except:

Accepted Answer

A) increase policymakers' credibility. 
B) increase policymakers' accountability. 
C) communicate policymakers' objectives clearly and openly. 
D) hinder economic growth. 
A) increase policymakers' credibility. 
B) increase policymakers' accountability. 
C) communicate policymakers' objectives clearly and openly. 
D) hinder economic growth.

Question 9

The fact that there is a market for federal funds enables banks to:

Accepted Answer

A) make fewer loans than they would otherwise. 
B) borrow more from the Fed. 
C) hold a lower level of excess reserves than they would otherwise hold. 
D) hold less in required reserves. 
A) make fewer loans than they would otherwise. 
B) borrow more from the Fed. 
C) hold a lower level of excess reserves than they would otherwise hold. 
D) hold less in required reserves.

Question 10

The European Central Bank's Marginal Lending Facility is used to provide:

Accepted Answer

A) short-term loans to banks at rates below the target refinancing rate. 
B) long-term loans to banks at rates above the target refinancing rate. 
C) short-term loans at rates above the target refinancing rate. 
D) long-term loans to banks at rates below the target refinancing rate. 
A) short-term loans to banks at rates below the target refinancing rate. 
B) long-term loans to banks at rates above the target refinancing rate. 
C) short-term loans at rates above the target refinancing rate. 
D) long-term loans to banks at rates below the target refinancing rate.

Question 11

Explain the three desirable features of a good monetary policy instrument.

Accepted Answer

The desirable features of a policy instr

Question 12

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system that involves setting:

Accepted Answer

A) target interest rate only. 
B) target interest rate and a lending rate only. 
C) target interest rate and a deposit rate only. 
D) target interest rate, a lending rate, and a deposit rate. 
A) target interest rate only. 
B) target interest rate and a lending rate only. 
C) target interest rate and a deposit rate only. 
D) target interest rate, a lending rate, and a deposit rate.

Question 13

The focus for most central banks today is:

Accepted Answer

A) the quantity of M1. 
B) interest rates. 
C) the quantity of M2. 
D) controlling the size of the money multiplier. 
A) the quantity of M1. 
B) interest rates. 
C) the quantity of M2. 
D) controlling the size of the money multiplier.

Question 14

The daily reserve supply curve is:

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) vertical until the federal funds rate equals the discount rate; at that point it becomes horizontal. 
D) horizontal until the federal funds rate equals the discount rate; at that point it becomes vertical. 
A) upward sloping. 
B) downward sloping. 
C) vertical until the federal funds rate equals the discount rate; at that point it becomes horizontal. 
D) horizontal until the federal funds rate equals the discount rate; at that point it becomes vertical.

Question 15

How do targeted asset purchases alter the outlook for the economy and inflation?

Accepted Answer

By selling short term securities like U.

Question 16

Describe the supply curve in the market for bank reserves.

Accepted Answer

The supply curve in the market for bank

Question 17

The key to the success of forward guidance as a monetary policy tool is:

Accepted Answer

A) timing. 
B) a favorable exchange rate. 
C) transparency. 
D) credibility. 
A) timing. 
B) a favorable exchange rate. 
C) transparency. 
D) credibility.

Question 18

Over the years most monetary policy experts would agree with each of the following statements, except:

Accepted Answer

A) the reserve requirement is not useful as an operational instrument. 
B) central bank lending is necessary to ensure financial stability. 
C) short-term interest rates are the best tool to use to stabilize short-term fluctuations in prices and output. 
D) transparency in policy making hinders accountability. 
A) the reserve requirement is not useful as an operational instrument. 
B) central bank lending is necessary to ensure financial stability. 
C) short-term interest rates are the best tool to use to stabilize short-term fluctuations in prices and output. 
D) transparency in policy making hinders accountability.

Question 19

Unconventional monetary policy tools include all but:

Accepted Answer

A) quantitative easing. 
B) forward guidance. 
C) targeted asset purchases. 
D) reserve requirement. 
A) quantitative easing. 
B) forward guidance. 
C) targeted asset purchases. 
D) reserve requirement.

Question 20

The Fed is reluctant to change the required reserve rate because:

Accepted Answer

A) changes in the rate have a small impact on the actual quantity of money. 
B) the money multiplier is not impacted by the required reserve rate. 
C) the time lag between changing the required reserve rate and changes in the money supply can be too long. 
D) small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits. 
A) changes in the rate have a small impact on the actual quantity of money. 
B) the money multiplier is not impacted by the required reserve rate. 
C) the time lag between changing the required reserve rate and changes in the money supply can be too long. 
D) small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits.

Exam 18: Monetary Policy: Stabilizing the Domestic Economy

The European equivalent of the U.S.'s market federal funds rate is called the:

Which of the following features would characterize a good monetary policy instrument?

Why does the Federal Funds rate face a zero bound?

State and briefly define the tools of monetary policy available to the Federal Reserve.

Discuss what experience concerning required reserves occurred during the Great Depression that contributes to the decision today not to use required reserves as an active tool of monetary policy.

Is the Taylor rule the specific formula followed by the FOMC? Explain.

During the 1990s many countries developed a monetary policy framework that focused on inflation targeting.This is an example of policymakers:

Inflation targeting does all of the following except:

The fact that there is a market for federal funds enables banks to:

The European Central Bank's Marginal Lending Facility is used to provide:

Explain the three desirable features of a good monetary policy instrument.

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system that involves setting:

The focus for most central banks today is:

The daily reserve supply curve is:

How do targeted asset purchases alter the outlook for the economy and inflation?

Describe the supply curve in the market for bank reserves.

The key to the success of forward guidance as a monetary policy tool is:

Over the years most monetary policy experts would agree with each of the following statements, except:

Unconventional monetary policy tools include all but:

The Fed is reluctant to change the required reserve rate because:

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

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