Question 1

Higher than expected inflation will increase the:

Accepted Answer

A) real interest rate borrowers pay on fixed rate mortgages. 
B) nominal amounts people need to save for retirement. 
C) real interest rate savers earn on fixed rate CDs. 
D) real interest rates both paid on mortgages and earned on CDs. 
A) real interest rate borrowers pay on fixed rate mortgages. 
B) nominal amounts people need to save for retirement. 
C) real interest rate savers earn on fixed rate CDs. 
D) real interest rates both paid on mortgages and earned on CDs. B

Question 2

The stability of the financial system is enhanced by the ability of central banks to:

Accepted Answer

A) be a lender of last resort. 
B) provide loans to insolvent banks. 
C) provide deposit insurance. 
D) convert poorly run banks into branches of the central bank. 
A) be a lender of last resort. 
B) provide loans to insolvent banks. 
C) provide deposit insurance. 
D) convert poorly run banks into branches of the central bank. A

Question 3

In the United States, monetary policy is formed by:

Accepted Answer

A) an individual advised by a close group of people. 
B) committee. 
C) the President and approved by Congress. 
D) the Chairman of the Federal Reserve and can only be overturned by the presidents of the Regional Federal Reserve Banks. 
A) an individual advised by a close group of people. 
B) committee. 
C) the President and approved by Congress. 
D) the Chairman of the Federal Reserve and can only be overturned by the presidents of the Regional Federal Reserve Banks. B

Question 4

Explain why inflation degrades the information content of prices.

Accepted Answer

For markets to work efficiently, prices

Question 5

The operational components required for truly independent central banks include:

Accepted Answer

A) a budget controlled by Congress. 
B) the ability to have policies reversed. 
C) monetary policies that cannot be reversed by anyone outside of the central bank. 
D) the chairperson of the bank being answerable only to the President. 
A) a budget controlled by Congress. 
B) the ability to have policies reversed. 
C) monetary policies that cannot be reversed by anyone outside of the central bank. 
D) the chairperson of the bank being answerable only to the President.

Question 6

The interest rate decisions made by the Federal Open Market Committee:

Accepted Answer

A) can be overridden by the President. 
B) can be overridden by the Secretary of the Treasury. 
C) can be overridden by the U.S.Senate by a two-thirds majority. 
D) cannot be overridden by anyone outside of the Federal Reserve. 
A) can be overridden by the President. 
B) can be overridden by the Secretary of the Treasury. 
C) can be overridden by the U.S.Senate by a two-thirds majority. 
D) cannot be overridden by anyone outside of the Federal Reserve.

Question 7

What do modern central bankers not do?

Accepted Answer

A modern central bank does not control s

Question 8

Predict how monetary policymaking would change, if at all, if members of the Board of Governors of the Federal Reserve were popularly elected to two-year terms and could run for re-election.

Accepted Answer

There would likely be many changes and n

Question 9

The central bank in the United States is:

Accepted Answer

A) the Bank of America. 
B) the Federal Reserve. 
C) the U.S.Treasury. 
D) the Bank of the United States. 
A) the Bank of America. 
B) the Federal Reserve. 
C) the U.S.Treasury. 
D) the Bank of the United States.

Question 10

In the United States, the Federal Reserve is asked to:

Accepted Answer

A) deliver on a specific inflation target set by Congress. 
B) meet an explicit target for economic growth. 
C) meet a specific target for unemployment each year. 
D) deliver price stability as one of a number of objectives. 
A) deliver on a specific inflation target set by Congress. 
B) meet an explicit target for economic growth. 
C) meet a specific target for unemployment each year. 
D) deliver price stability as one of a number of objectives.

Question 11

The Federal Reserve's policy regarding announcing its policy decisions has:

Accepted Answer

A) always been to announce it immediately; that was part of the original Federal Reserve Act of 1913. 
B) only recently gone to immediate announcement; until 1994 these policy decisions were secret. 
C) been to release the decisions immediately since its early failure at preventing the Great Depression. 
D) changed so that now the Fed does not release its decisions publicly. 
A) always been to announce it immediately; that was part of the original Federal Reserve Act of 1913. 
B) only recently gone to immediate announcement; until 1994 these policy decisions were secret. 
C) been to release the decisions immediately since its early failure at preventing the Great Depression. 
D) changed so that now the Fed does not release its decisions publicly.

Question 12

Keeping interest rates stable is:

Accepted Answer

A) the most important goal for a central bank. 
B) a key goal, because stable interest rates will result in all other goals being achieved. 
C) a secondary goal for central banks. 
D) not a goal of the central bank. 
A) the most important goal for a central bank. 
B) a key goal, because stable interest rates will result in all other goals being achieved. 
C) a secondary goal for central banks. 
D) not a goal of the central bank.

Question 13

The central bank for the euro area tries to achieve accountability and transparency through a:

Accepted Answer

A) standard numerical objective for inflation over the medium term. 
B) specific target for unemployment and economic growth. 
C) following the monetary policy guidance of the European Parliament. 
D) specific target for the dollar euro exchange rate. 
A) standard numerical objective for inflation over the medium term. 
B) specific target for unemployment and economic growth. 
C) following the monetary policy guidance of the European Parliament. 
D) specific target for the dollar euro exchange rate.

Question 14

Most economists agree that a well-designed central bank would:

Accepted Answer

A) be independent of political pressure. 
B) make its policy actions difficult to interpret. 
C) be accountable only to other banks. 
D) be run by one key policy maker. 
A) be independent of political pressure. 
B) make its policy actions difficult to interpret. 
C) be accountable only to other banks. 
D) be run by one key policy maker.

Question 15

The autonomy of modern central banks means that governments cannot increase their spending by:

Accepted Answer

A) raising taxes. 
B) issuing bonds. 
C) printing money. 
D) either issuing bonds or printing money; both represent debt. 
A) raising taxes. 
B) issuing bonds. 
C) printing money. 
D) either issuing bonds or printing money; both represent debt.

Question 16

Imagine a central banker who takes office believing that, ultimately, the best way to stimulate an economy is to keep people guessing.This means the policymaker will often, but not always, announce one change but then actually do something else.What do you think of the central bank's chances for achieving its objectives and why?

Accepted Answer

This violates one of the requirements of

Question 17

In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast inflation rates for the next decade in the United States were:

Accepted Answer

A) 0%. 
B) 2%. 
C) 4%. 
D) 7%. 
A) 0%. 
B) 2%. 
C) 4%. 
D) 7%.

Question 18

The means for assuring accountability and transparency:

Accepted Answer

A) may differ across the central banks of different countries. 
B) are the same for all successful central banks. 
C) involve setting specific numerical targets so there is no confusion as to what the goal is. 
D) are opposite to each other; increasing one means decreasing the other. 
A) may differ across the central banks of different countries. 
B) are the same for all successful central banks. 
C) involve setting specific numerical targets so there is no confusion as to what the goal is. 
D) are opposite to each other; increasing one means decreasing the other.

Question 19

Which of the following statements regarding growth was brought out from the material in Chapter 15?

Accepted Answer

A) Stability results in higher output growth rates. 
B) Inflation volatility results in higher output growth rates. 
C) There is no correlation between the volatility in growth rates and annual output growth. 
D) The more volatile the growth rate, the higher is the annual output growth. 
A) Stability results in higher output growth rates. 
B) Inflation volatility results in higher output growth rates. 
C) There is no correlation between the volatility in growth rates and annual output growth. 
D) The more volatile the growth rate, the higher is the annual output growth.

Question 20

Why might Congress actually prefer the higher rate of inflation that might result from deficit spending to higher taxes and/or a cut in government spending?

Accepted Answer

Raising taxes and/or cutting spending ar

Exam 15: Central Banks in the World Today

Higher than expected inflation will increase the:

The stability of the financial system is enhanced by the ability of central banks to:

In the United States, monetary policy is formed by:

Explain why inflation degrades the information content of prices.

The operational components required for truly independent central banks include:

The interest rate decisions made by the Federal Open Market Committee:

What do modern central bankers not do?

Predict how monetary policymaking would change, if at all, if members of the Board of Governors of the Federal Reserve were popularly elected to two-year terms and could run for re-election.

The central bank in the United States is:

In the United States, the Federal Reserve is asked to:

The Federal Reserve's policy regarding announcing its policy decisions has:

Keeping interest rates stable is:

The central bank for the euro area tries to achieve accountability and transparency through a:

Most economists agree that a well-designed central bank would:

The autonomy of modern central banks means that governments cannot increase their spending by:

In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast inflation rates for the next decade in the United States were:

The means for assuring accountability and transparency:

Which of the following statements regarding growth was brought out from the material in Chapter 15?

Why might Congress actually prefer the higher rate of inflation that might result from deficit spending to higher taxes and/or a cut in government spending?

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

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

Modern Monetary Policy and the Challenges Facing Central Bankers

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