Question 1

An open market sale of securities by the central bank to banks will:

Accepted Answer

A) Increase the banks' revenue even if the bank does nothing with the reserves 
B) Induce the banks to make more loans since their revenue will decrease if they do nothing 
C) Increase the amount of deposits in the banking system 
D) Increase the banks' willingness and ability to make loans 
A) Increase the banks' revenue even if the bank does nothing with the reserves 
B) Induce the banks to make more loans since their revenue will decrease if they do nothing 
C) Increase the amount of deposits in the banking system 
D) Increase the banks' willingness and ability to make loans

Question 2

The interest-rate channel of monetary policy transmission appears to be:

Accepted Answer

A) Weak because the investment component of total spending isn't very sensitive to interest rates 
B) Weak because the investment component of total spending is very sensitive to interest rates 
C) Strong because the investment component of total spending isn't very sensitive to interest rates 
D) Strong because the investment component of total spending is very sensitive to interest rates 
A) Weak because the investment component of total spending isn't very sensitive to interest rates 
B) Weak because the investment component of total spending is very sensitive to interest rates 
C) Strong because the investment component of total spending isn't very sensitive to interest rates 
D) Strong because the investment component of total spending is very sensitive to interest rates

Question 3

What are the unconventional policy options that central bankers can use if the traditional target interest rate hits zero?

Accepted Answer

The unconventional policy options are ba

Question 4

As interest rates rise the supply of loans may decrease because:

Accepted Answer

A) Borrowers net worth rises 
B) Demand for loans falls 
C) Lenders are increasingly on the lookout for adverse selection 
D) All of the answers given are correct 
A) Borrowers net worth rises 
B) Demand for loans falls 
C) Lenders are increasingly on the lookout for adverse selection 
D) All of the answers given are correct

Question 5

Higher home values can increase output in the economy if:

Accepted Answer

A) People take some of the equity out of their homes and spend it on a vacation 
B) People sell their existing home and build a new one 
C) People finance their child's college education by securing a second mortgage on their now higher-valued home 
D) All of the answers given are correct 
A) People take some of the equity out of their homes and spend it on a vacation 
B) People sell their existing home and build a new one 
C) People finance their child's college education by securing a second mortgage on their now higher-valued home 
D) All of the answers given are correct

Question 6

How did financial regulation affect bank lending in the 1980s?

Accepted Answer

In 1980, then President Jimmy Carter aut

Question 7

The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet.Explain how the balance sheet of a firm will be impacted by an increase in interest rates.

Accepted Answer

An increase in interest rates will lower

Question 8

The relationship between real estate markets and interest rates is:

Accepted Answer

A) Nonexistent 
B) Inverse; higher interest rates drive down real estate prices and vice versa 
C) Complex; cuts in the short-term interest rate lead to increases in long-term rates and higher real estate prices 
D) Direct; high interest rates lead to high real estate values as people abandon other financial assets 
A) Nonexistent 
B) Inverse; higher interest rates drive down real estate prices and vice versa 
C) Complex; cuts in the short-term interest rate lead to increases in long-term rates and higher real estate prices 
D) Direct; high interest rates lead to high real estate values as people abandon other financial assets

Question 9

To compensate for the collapse of intermediation and the fragility of financial markets during the 2007-2009 financial crisis, central banks deployed all but which of the following unconventional tools?

Accepted Answer

A) Policy duration commitments 
B) Lowering interbank lending interest rate targets 
C) Quantitative easing 
D) Credit easing 
A) Policy duration commitments 
B) Lowering interbank lending interest rate targets 
C) Quantitative easing 
D) Credit easing

Question 10

Between January and November of 2001, the FOMC reduced the target federal funds rate from 6½ to 1¾.A reason for this was that the FOMC:

Accepted Answer

A) Was acting preemptively 
B) Feared over stimulating the economy 
C) Was taking a wait and see approach to previous cuts 
D) Was feeling political pressure to act 
A) Was acting preemptively 
B) Feared over stimulating the economy 
C) Was taking a wait and see approach to previous cuts 
D) Was feeling political pressure to act

Question 11

Explain how an easing of monetary policy works through the exchange rate and what potential impact on the economy this would have.

Accepted Answer

An easing of monetary policy lowers the

Question 12

Equity and property price bubbles develop when:

Accepted Answer

A) Financial assets are undervalued 
B) Financial asset prices reflect the book value of companies 
C) Financial asset prices are well above what seems to be a reasonable present value estimate of earnings 
D) The earnings that companies report are overstated 
A) Financial assets are undervalued 
B) Financial asset prices reflect the book value of companies 
C) Financial asset prices are well above what seems to be a reasonable present value estimate of earnings 
D) The earnings that companies report are overstated

Question 13

Suppose that the overnight interest rate falls to zero and output is below potential output.A central bank could:

Accepted Answer

A) Shift to targeting longer-term rates 
B) Use its balance sheet to expand the monetary base 
C) Purchase securities of different maturities to affect their market prices and rates 
D) All of the answers given are correct 
A) Shift to targeting longer-term rates 
B) Use its balance sheet to expand the monetary base 
C) Purchase securities of different maturities to affect their market prices and rates 
D) All of the answers given are correct

Question 14

During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers.Which of the following contributing to this lack of response?

Accepted Answer

A) Many banks that continued to make loans were actually insolvent 
B) The Japanese stock market collapsed 
C) Property values fell dramatically 
D) All of the answers given are correct 
A) Many banks that continued to make loans were actually insolvent 
B) The Japanese stock market collapsed 
C) Property values fell dramatically 
D) All of the answers given are correct

Question 15

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

Accepted Answer

When interest rates increase it becomes

Question 16

Some people, who believe monetary policymakers should not address equity and property price bubbles, argue their position based on:

Accepted Answer

A) Their belief that government should stay out of private matters 
B) The policymakers lack experience with financial markets 
C) Price bubbles are virtually impossible to identify when they are developing 
D) All of the answers given are correct 
A) Their belief that government should stay out of private matters 
B) The policymakers lack experience with financial markets 
C) Price bubbles are virtually impossible to identify when they are developing 
D) All of the answers given are correct

Question 17

Deflation:

Accepted Answer

A) Is always a problem 
B) Is not a problem unless it moves output below potential output 
C) Is not a problem unless it moves output so low that policymakers can't bring it back up 
D) Is beneficial to an economy during times of economic expansion 
A) Is always a problem 
B) Is not a problem unless it moves output below potential output 
C) Is not a problem unless it moves output so low that policymakers can't bring it back up 
D) Is beneficial to an economy during times of economic expansion

Question 18

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

Accepted Answer

The arguments for intervention include t

Question 19

The importance of the bank lending transmission mechanism of monetary policy:

Accepted Answer

A) Has increased over the past twenty years 
B) Has decreased over the past twenty years 
C) Should continue to grow in importance 
D) Has always been the weakest of all of the mechanisms 
A) Has increased over the past twenty years 
B) Has decreased over the past twenty years 
C) Should continue to grow in importance 
D) Has always been the weakest of all of the mechanisms

Question 20

Which of the following statements would you say best reflects monetary policy?

Accepted Answer

A) It is a hard and fast science 
B) It requires a lot of guessing 
C) It is a lot like gambling because the outcomes are most of the time uncertain 
D) There is certainly some science involved, a lot of understanding that is needed, but a lot of uncertainty still remains 
A) It is a hard and fast science 
B) It requires a lot of guessing 
C) It is a lot like gambling because the outcomes are most of the time uncertain 
D) There is certainly some science involved, a lot of understanding that is needed, but a lot of uncertainty still remains

Exam 23: Modern Monetary Policy and the Challenges Facing Central Bankers

An open market sale of securities by the central bank to banks will:

The interest-rate channel of monetary policy transmission appears to be:

What are the unconventional policy options that central bankers can use if the traditional target interest rate hits zero?

As interest rates rise the supply of loans may decrease because:

Higher home values can increase output in the economy if:

How did financial regulation affect bank lending in the 1980s?

The name balance-sheet channel of monetary policy implies that monetary policy has to impact categories on a firm's balance sheet.Explain how the balance sheet of a firm will be impacted by an increase in interest rates.

The relationship between real estate markets and interest rates is:

To compensate for the collapse of intermediation and the fragility of financial markets during the 2007-2009 financial crisis, central banks deployed all but which of the following unconventional tools?

Between January and November of 2001, the FOMC reduced the target federal funds rate from 6½ to 1¾.A reason for this was that the FOMC:

Explain how an easing of monetary policy works through the exchange rate and what potential impact on the economy this would have.

Equity and property price bubbles develop when:

Suppose that the overnight interest rate falls to zero and output is below potential output.A central bank could:

During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers.Which of the following contributing to this lack of response?

How does adverse selection factor into explaining the reduced supply of loans when interest rates increase?

Some people, who believe monetary policymakers should not address equity and property price bubbles, argue their position based on:

Deflation:

What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

The importance of the bank lending transmission mechanism of monetary policy:

Which of the following statements would you say best reflects monetary policy?

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

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

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