Question 1

In its role as the bankers' bank, a central bank performs each of the following, except:

Accepted Answer

A) providing loans during times of financial distress. 
B) providing deposit insurance. 
C) overseeing commercial banks and the financial system. 
D) managing the payments system. 
A) providing loans during times of financial distress. 
B) providing deposit insurance. 
C) overseeing commercial banks and the financial system. 
D) managing the payments system.

Question 2

The Federal Reserve didn't always communicate its actions to the public like it does today.As recently as the mid 1990s, secrecy ruled.Why do you think the Fed and most central banks now are more public about their actions and the reasons for them?

Accepted Answer

In principles of economics we learn that

Question 3

Using the U.S.as an example, explain why rising budget deficits on the part of a federal government creates a potential point of conflict between fiscal and monetary policymakers.

Accepted Answer

Members of Congress and the President ha

Question 4

Provide an example where monetary policymakers in the United States would be put in a position of conflicting goals and as a result forced to make a tradeoff.

Accepted Answer

We can borrow one from the text.By mid-2

Question 5

Today, most central banks announce their policy actions:

Accepted Answer

A) one year after the policy is put in place. 
B) almost immediately. 
C) within a 3 to 5 year "window". 
D) usually six months after the policy is put in place. 
A) one year after the policy is put in place. 
B) almost immediately. 
C) within a 3 to 5 year "window". 
D) usually six months after the policy is put in place.

Question 6

Since the Federal Reserve was created, it has:

Accepted Answer

A) averted all financial panics that could have plagued the U.S.economy. 
B) averted a few financial panics but not most. 
C) improved its skill at securing financial stability. 
D) proved to be much better at preventing international panics than domestic ones. 
A) averted all financial panics that could have plagued the U.S.economy. 
B) averted a few financial panics but not most. 
C) improved its skill at securing financial stability. 
D) proved to be much better at preventing international panics than domestic ones.

Question 7

Explain why inflation is a way for governments to default on a portion of the debts they owe.

Accepted Answer

If a government forces the central bank

Question 8

One reason given for more central bankers releasing its decisions publicly is:

Accepted Answer

A) for monetary policy to work, people must be taken by surprise. 
B) most people do not understand monetary policy so it really doesn't do any harm to release the decisions publicly. 
C) so that central banks across the world can coordinate their policies. 
D) monetary policy is more effective when households and businesses can understand and anticipate it. 
A) for monetary policy to work, people must be taken by surprise. 
B) most people do not understand monetary policy so it really doesn't do any harm to release the decisions publicly. 
C) so that central banks across the world can coordinate their policies. 
D) monetary policy is more effective when households and businesses can understand and anticipate it.

Question 9

The idea that central banks should be independent of political pressure is an idea that:

Accepted Answer

A) has been around since there were central banks. 
B) is relatively new. 
C) every central bank was founded upon. 
D) became quite popular in the early 1900s. 
A) has been around since there were central banks. 
B) is relatively new. 
C) every central bank was founded upon. 
D) became quite popular in the early 1900s.

Question 10

Everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank:

Accepted Answer

A) will keep interest rates low to keep the momentum. 
B) will now identify this new rate as the sustainable rate and try to maintain it. 
C) is likely to raise interest rates to slow the rate of growth. 
D) is likely to lower the interest rate thinking a slowdown is coming to offset this boom. 
A) will keep interest rates low to keep the momentum. 
B) will now identify this new rate as the sustainable rate and try to maintain it. 
C) is likely to raise interest rates to slow the rate of growth. 
D) is likely to lower the interest rate thinking a slowdown is coming to offset this boom.

Question 11

Potential output depends on all of the following except:

Accepted Answer

A) technology. 
B) the number of firms in the economy. 
C) the size of the capital stock. 
D) the number of people who can work. 
A) technology. 
B) the number of firms in the economy. 
C) the size of the capital stock. 
D) the number of people who can work.

Question 12

To say monetary policy is transparent implies:

Accepted Answer

A) that anyone could figure out what the correct policy should be. 
B) monetary policy should not be so difficult that most people couldn't understand it. 
C) policymakers offer plausible explanations for their decisions along with supporting data. 
D) that when faced with the same problem, policymakers will always react the same way. 
A) that anyone could figure out what the correct policy should be. 
B) monetary policy should not be so difficult that most people couldn't understand it. 
C) policymakers offer plausible explanations for their decisions along with supporting data. 
D) that when faced with the same problem, policymakers will always react the same way.

Question 13

The 1990s saw inflation fall and real growth increase in the U.S.and in many other countries.This is partially attributed to all of the following except:

Accepted Answer

A) technological innovation. 
B) redesign of many central banks. 
C) central banks became better at their jobs. 
D) central banks focused more on exchange rates in a global environment. 
A) technological innovation. 
B) redesign of many central banks. 
C) central banks became better at their jobs. 
D) central banks focused more on exchange rates in a global environment.

Question 14

If governments operated like businesses, meaning their goal was to maximize profits, why would they likely never give up the power to print money to any other institution?

Accepted Answer

Printing money can be a very p

Question 15

The central bank has the ability to create money; this means it:

Accepted Answer

A) can control the availability of money but not the availability of credit in the economy. 
B) can make loans only when other institutions can. 
C) can impact the rate of inflation. 
D) has an objective to maximize its profit. 
A) can control the availability of money but not the availability of credit in the economy. 
B) can make loans only when other institutions can. 
C) can impact the rate of inflation. 
D) has an objective to maximize its profit.

Question 16

If one of the specific goals that central bankers focus on is economic growth, should they aim for the highest short-term growth rate the economy can achieve? Explain.

Accepted Answer

Central bankers do have economic growth

Question 17

Which of the following is the best analogy? Inflation is like:

Accepted Answer

A) a pound having more ounces. 
B) a day having more hours. 
C) a minute having fewer seconds. 
D) a mile having more feet. 
A) a pound having more ounces. 
B) a day having more hours. 
C) a minute having fewer seconds. 
D) a mile having more feet.

Question 18

Imagine you own a retail mail order business.You produce your catalog, where items and prices are listed, in January and you use the same catalog all year.The central bank in your country increases the money supply by an amount to cause inflation to average one percent each month.Ignoring any seasonality in sales (like the holiday season), what should happen to your sales as the year progresses and why?

Accepted Answer

As the year progresses sales should incr

Question 19

One use of a monetary policy framework is to clarify all of the following except:

Accepted Answer

A) the likely response when policy goals are in conflict with one another. 
B) the goal that is currently receiving the most attention. 
C) how goals will be measured. 
D) why zero inflation is not desirable. 
A) the likely response when policy goals are in conflict with one another. 
B) the goal that is currently receiving the most attention. 
C) how goals will be measured. 
D) why zero inflation is not desirable.

Question 20

The ability to control inflation expectations is most closely related to a central bank's:

Accepted Answer

A) transparency. 
B) credibility. 
C) accountability. 
D) willingness to communicate. 
A) transparency. 
B) credibility. 
C) accountability. 
D) willingness to communicate.

Exam 15: Central Banks in the World Today

In its role as the bankers' bank, a central bank performs each of the following, except:

The Federal Reserve didn't always communicate its actions to the public like it does today.As recently as the mid 1990s, secrecy ruled.Why do you think the Fed and most central banks now are more public about their actions and the reasons for them?

Using the U.S.as an example, explain why rising budget deficits on the part of a federal government creates a potential point of conflict between fiscal and monetary policymakers.

Provide an example where monetary policymakers in the United States would be put in a position of conflicting goals and as a result forced to make a tradeoff.

Today, most central banks announce their policy actions:

Since the Federal Reserve was created, it has:

Explain why inflation is a way for governments to default on a portion of the debts they owe.

One reason given for more central bankers releasing its decisions publicly is:

The idea that central banks should be independent of political pressure is an idea that:

Everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank:

Potential output depends on all of the following except:

To say monetary policy is transparent implies:

The 1990s saw inflation fall and real growth increase in the U.S.and in many other countries.This is partially attributed to all of the following except:

If governments operated like businesses, meaning their goal was to maximize profits, why would they likely never give up the power to print money to any other institution?

The central bank has the ability to create money; this means it:

If one of the specific goals that central bankers focus on is economic growth, should they aim for the highest short-term growth rate the economy can achieve? Explain.

Which of the following is the best analogy? Inflation is like:

One use of a monetary policy framework is to clarify all of the following except:

The ability to control inflation expectations is most closely related to a central bank's:

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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