Question 1

Which of the following is not a disadvantage of of the Fed's "just do it" approach to monetary policy?

Accepted Answer

A) There is low transparency of policy. 
B) There is low accountability for central bankers. 
C) This type of policy relies on the policy-makers in charge. 
D) It relies on a stable money-inflation relationship. 
A) There is low transparency of policy. 
B) There is low accountability for central bankers. 
C) This type of policy relies on the policy-makers in charge. 
D) It relies on a stable money-inflation relationship.

Question 2

Which of the following is not a disadvantage to inflation targeting?

Accepted Answer

A) There is a delayed signal about achievement of the target. 
B) Inflation targets could impose a rigid rule on policymakers. 
C) There is potential for larger output fluctuations. 
D) There is a lack of transparency. 
A) There is a delayed signal about achievement of the target. 
B) Inflation targets could impose a rigid rule on policymakers. 
C) There is potential for larger output fluctuations. 
D) There is a lack of transparency.

Question 3

If the central bank targets a monetary aggregate,it is likely to lose control over the interest rate because

Accepted Answer

A) of fluctuations in the demand for reserves. 
B) of fluctuations in the consumption function. 
C) bond values will tend to remain stable. 
D) of fluctuations in the business cycle. 
A) of fluctuations in the demand for reserves. 
B) of fluctuations in the consumption function. 
C) bond values will tend to remain stable. 
D) of fluctuations in the business cycle.

Question 4

A credit-driven bubble arises when ________ in lending causes ________ in asset prices which can cause ________ in lending.

Accepted Answer

A) a decrease; a decrease; an increase 
B) a decrease; an increase; an increase 
C) an increase; an increase; a further increase 
D) a decrease; a decrease; a further decrease 
A) a decrease; a decrease; an increase 
B) a decrease; an increase; an increase 
C) an increase; an increase; a further increase 
D) a decrease; a decrease; a further decrease

Question 5

Which of the following is an advantage to money targeting?

Accepted Answer

A) There is an immediate signal on the achievement of the target. 
B) It does not rely on a stable money-inflation relationship. 
C) It implies lack of transparency. 
D) It implies smaller output fluctuations. 
A) There is an immediate signal on the achievement of the target. 
B) It does not rely on a stable money-inflation relationship. 
C) It implies lack of transparency. 
D) It implies smaller output fluctuations.

Question 6

A borrowed reserves target is ________ because increases in income ________ interest rates and discount loans,causing the Fed to ________ the monetary base,everything else held constant.

Accepted Answer

A) procyclical; increase; increase 
B) countercyclical; increase; increase 
C) procyclical; reduce; reduce 
D) countercyclical; reduce; reduce 
A) procyclical; increase; increase 
B) countercyclical; increase; increase 
C) procyclical; reduce; reduce 
D) countercyclical; reduce; reduce

Question 7

If the desired intermediate target is an interest rate,the preferred policy instrument would be

Accepted Answer

A) the federal funds rate. 
B) the monetary base. 
C) nonborrowed reserves. 
D) borrowed reserves. 
E) the discount rate. 
A) the federal funds rate. 
B) the monetary base. 
C) nonborrowed reserves. 
D) borrowed reserves. 
E) the discount rate.

Question 8

When asset prices increase above their fundamental values it is called an ________.

Accepted Answer

A) asset-price bubble 
B) irrational bubble 
C) asset-price spike 
D) irrational spike 
A) asset-price bubble 
B) irrational bubble 
C) asset-price spike 
D) irrational spike

Question 9

The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to

Accepted Answer

A) let interest rates increase. 
B) let unemployment increase. 
C) let inflation accelerate. 
D) let exchange rates increase. 
A) let interest rates increase. 
B) let unemployment increase. 
C) let inflation accelerate. 
D) let exchange rates increase.

Question 10

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that

Accepted Answer

A) they used a rigid target for the money growth rate. 
B) they implemented policy so their inflation rate goal was met in the short run. 
C) the money target was flexible to allow the Bundesbank to concentrate on other goals as needed. 
D) they rarely communicated the intentions of policy to the public in order to keep the public from panicking. 
A) they used a rigid target for the money growth rate. 
B) they implemented policy so their inflation rate goal was met in the short run. 
C) the money target was flexible to allow the Bundesbank to concentrate on other goals as needed. 
D) they rarely communicated the intentions of policy to the public in order to keep the public from panicking.

Question 11

The monetary policy strategy that suffers a lack of transparency is

Accepted Answer

A) exchange-rate targeting. 
B) monetary targeting. 
C) inflation targeting. 
D) the implicit nominal anchor. 
A) exchange-rate targeting. 
B) monetary targeting. 
C) inflation targeting. 
D) the implicit nominal anchor.

Question 12

The guiding principle for the conduct of monetary policy that held that as long as loans were being made for "productive" purposes,then providing reserves to the banking system to make these loans would not be inflationary became known as the

Accepted Answer

A) free reserves doctrine. 
B) Benjamin Strong doctrine. 
C) efficient liquidity doctrine. 
D) real bills doctrine. 
A) free reserves doctrine. 
B) Benjamin Strong doctrine. 
C) efficient liquidity doctrine. 
D) real bills doctrine.

Question 13

The strengthening of the dollar between 1980 and 1985 contributed to a ________ in American competitiveness,putting pressure on the Fed to pursue a more ________ monetary policy.

Accepted Answer

A) decrease; contractionary 
B) increase; expansionary 
C) increase; contractionary 
D) decrease; expansionary 
A) decrease; contractionary 
B) increase; expansionary 
C) increase; contractionary 
D) decrease; expansionary

Question 14

If the desired intermediate target is a monetary aggregate,which of the following would be the most preferred policy instrument?

Accepted Answer

A) The federal funds rate 
B) The 90-day T-bill rate 
C) The 180-day T-bill rate 
D) The monetary base 
A) The federal funds rate 
B) The 90-day T-bill rate 
C) The 180-day T-bill rate 
D) The monetary base

Question 15

International policy coordination refers to

Accepted Answer

A) central banks in major nations acting without regard to the global consequences of their policies. 
B) central banks in major nations pursuing only domestic objectives. 
C) central banks adopting policies in pursuit of joint objectives. 
D) central banks all adopting identical policies. 
A) central banks in major nations acting without regard to the global consequences of their policies. 
B) central banks in major nations pursuing only domestic objectives. 
C) central banks adopting policies in pursuit of joint objectives. 
D) central banks all adopting identical policies.

Question 16

The type of monetary policy regime that the Federal Reserve has been following in recent years can best be described as

Accepted Answer

A) monetary targeting. 
B) inflation targeting. 
C) policy with an implicit nominal anchor. 
D) exchange-rate targeting. 
A) monetary targeting. 
B) inflation targeting. 
C) policy with an implicit nominal anchor. 
D) exchange-rate targeting.

Question 17

Which of the following is not an element of inflation targeting?

Accepted Answer

A) A public announcement of medium-term numerical targets for inflation 
B) An institutional commitment to price stability as the primary long-run goal 
C) An information-inclusive approach in which only monetary aggregates are used in making decisions about monetary policy 
D) Increased accountability of the central bank for attaining its inflation objectives 
A) A public announcement of medium-term numerical targets for inflation 
B) An institutional commitment to price stability as the primary long-run goal 
C) An information-inclusive approach in which only monetary aggregates are used in making decisions about monetary policy 
D) Increased accountability of the central bank for attaining its inflation objectives

Question 18

The Fed's mistakes of the early 1930s were compounded by its decision to

Accepted Answer

A) raise reserve requirements in 1936-1937. 
B) lower reserve requirements in 1936-1937. 
C) raise the monetary base in 1936-1937. 
D) lower the monetary base in 1936-1937. 
A) raise reserve requirements in 1936-1937. 
B) lower reserve requirements in 1936-1937. 
C) raise the monetary base in 1936-1937. 
D) lower the monetary base in 1936-1937.

Question 19

If the relationship between the monetary aggregate and the goal variable is weak,then

Accepted Answer

A) monetary aggregate targeting is superior to exchange-rate targeting. 
B) monetary aggregate targeting is superior to inflation targeting. 
C) inflation targeting is superior to exchange-rate targeting. 
D) monetary aggregate targeting will not work. 
A) monetary aggregate targeting is superior to exchange-rate targeting. 
B) monetary aggregate targeting is superior to inflation targeting. 
C) inflation targeting is superior to exchange-rate targeting. 
D) monetary aggregate targeting will not work.

Question 20

Explain and demonstrate graphically how targeting nonborrowed reserves can result in federal funds rate instability.

Accepted Answer

See figure below. @#IMG-DLM& When nonborrowed rese

Exam 16: The Conduct of Monetary Policy: Strategy and Tactics

Which of the following is not a disadvantage of of the Fed's "just do it" approach to monetary policy?

Which of the following is not a disadvantage to inflation targeting?

If the central bank targets a monetary aggregate,it is likely to lose control over the interest rate because

A credit-driven bubble arises when ________ in lending causes ________ in asset prices which can cause ________ in lending.

Which of the following is an advantage to money targeting?

A borrowed reserves target is ________ because increases in income ________ interest rates and discount loans,causing the Fed to ________ the monetary base,everything else held constant.

If the desired intermediate target is an interest rate,the preferred policy instrument would be

When asset prices increase above their fundamental values it is called an ________.

The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that

The monetary policy strategy that suffers a lack of transparency is

The guiding principle for the conduct of monetary policy that held that as long as loans were being made for "productive" purposes,then providing reserves to the banking system to make these loans would not be inflationary became known as the

The strengthening of the dollar between 1980 and 1985 contributed to a ________ in American competitiveness,putting pressure on the Fed to pursue a more ________ monetary policy.

If the desired intermediate target is a monetary aggregate,which of the following would be the most preferred policy instrument?

International policy coordination refers to

The type of monetary policy regime that the Federal Reserve has been following in recent years can best be described as

Which of the following is not an element of inflation targeting?

The Fed's mistakes of the early 1930s were compounded by its decision to

If the relationship between the monetary aggregate and the goal variable is weak,then

Explain and demonstrate graphically how targeting nonborrowed reserves can result in federal funds rate instability.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

A credit-driven bubble arises when in lending causes in asset prices which can cause in lending.

A borrowed reserves target is because increases in income interest rates and discount loans,causing the Fed to the monetary base,everything else held constant.

The strengthening of the dollar between 1980 and 1985 contributed to a in American competitiveness,putting pressure on the Fed to pursue a more monetary policy.