Question 1

Higher stock prices can lead to greater investment spending by firms because:

Accepted Answer

A) The cost of internal financing is lower 
B) The market value of a firm is now less than the replacement cost of the firm 
C) The firm gets 100 percent of the increase in the stock value 
D) The cost of internal financing is lower and the firm also gets 100 percent of the increase in the stock value 
A) The cost of internal financing is lower 
B) The market value of a firm is now less than the replacement cost of the firm 
C) The firm gets 100 percent of the increase in the stock value 
D) The cost of internal financing is lower and the firm also gets 100 percent of the increase in the stock value

Question 2

If a borrower's net worth increases:

Accepted Answer

A) The likelihood of moral hazard also increases 
B) The borrowers are likely to want to take more risk 
C) The moral hazard risk for the potential lenders decreases 
D) The supply of loans decreases 
A) The likelihood of moral hazard also increases 
B) The borrowers are likely to want to take more risk 
C) The moral hazard risk for the potential lenders decreases 
D) The supply of loans decreases

Question 3

Monetary policy reached its limits of influence in Japan in the late 1990s due to the fact that:

Accepted Answer

A) The yen was seen as overvalued 
B) The overnight interest rate had been reduced to a nominal rate of zero 
C) People no longer had confidence in the yen 
D) The Japanese central bank had their power revoked 
A) The yen was seen as overvalued 
B) The overnight interest rate had been reduced to a nominal rate of zero 
C) People no longer had confidence in the yen 
D) The Japanese central bank had their power revoked

Question 4

The importance of the bank-lending channel of monetary policy transmission:

Accepted Answer

A) Becomes more important the more important banks are as a source of funds for firms and individuals 
B) Is likely to become more important with the growth of loan brokers and asset-backed securities 
C) Has become more important as technology has solved the problems of information and moral hazard 
D) None of the answers given is correct 
A) Becomes more important the more important banks are as a source of funds for firms and individuals 
B) Is likely to become more important with the growth of loan brokers and asset-backed securities 
C) Has become more important as technology has solved the problems of information and moral hazard 
D) None of the answers given is correct

Question 5

Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

Accepted Answer

The shift away from bank financing and t

Question 6

Changing short-term interest rates have a(n):

Accepted Answer

A) Strong and significant impact on household purchase decisions 
B) Almost negligible impact on household purchasing decisions 
C) Somewhat modest impact on household purchasing decisions if short-run interest rates impact long-term rates 
D) None of the answers provided are correct 
A) Strong and significant impact on household purchase decisions 
B) Almost negligible impact on household purchasing decisions 
C) Somewhat modest impact on household purchasing decisions if short-run interest rates impact long-term rates 
D) None of the answers provided are correct

Question 7

The Federal Reserve's surveys of bank loan officers contain questions about:

Accepted Answer

A) The interest rates being charged 
B) The supply of and demand for loans 
C) The quantity and quality of loans 
D) All of the answers given are correct 
A) The interest rates being charged 
B) The supply of and demand for loans 
C) The quantity and quality of loans 
D) All of the answers given are correct

Question 8

The bank-lending channel of monetary policy focuses on:

Accepted Answer

A) The interest rate banks charge their largest customer 
B) The banks' willingness and ability to lend 
C) How central bank policy influences the solvency of banks 
D) The deposit insurance premiums banks will end up paying 
A) The interest rate banks charge their largest customer 
B) The banks' willingness and ability to lend 
C) How central bank policy influences the solvency of banks 
D) The deposit insurance premiums banks will end up paying

Question 9

If an economy is experiencing deflation and the nominal interest rate is zero:

Accepted Answer

A) Monetary policy is likely effective 
B) Fiscal policy would likely be the tool of choice for stabilization 
C) Real interest rates will decrease 
D) Aggregate demand is likely to increase 
A) Monetary policy is likely effective 
B) Fiscal policy would likely be the tool of choice for stabilization 
C) Real interest rates will decrease 
D) Aggregate demand is likely to increase

Question 10

All but which of the following could be adjusted as a means of deflating asset price bubbles?

Accepted Answer

A) Interest rates 
B) Capital requirements 
C) Capital surcharges 
D) Fees for insuring the capital of banks 
A) Interest rates 
B) Capital requirements 
C) Capital surcharges 
D) Fees for insuring the capital of banks

Question 11

Bonds must have positive yields because:

Accepted Answer

A) The U.S.treasury guarantees all bonds to have a positive yield 
B) The banking technology does not exist to deal with negative yields 
C) People can always hold cash 
D) All of the answers given are correct 
A) The U.S.treasury guarantees all bonds to have a positive yield 
B) The banking technology does not exist to deal with negative yields 
C) People can always hold cash 
D) All of the answers given are correct

Question 12

If interest rates increase, the supply of loans is likely to:

Accepted Answer

A) Decrease 
B) Not change 
C) Increase since lenders are likely to earn more 
D) Change by the same amount as demand 
A) Decrease 
B) Not change 
C) Increase since lenders are likely to earn more 
D) Change by the same amount as demand

Question 13

All but which of the following is a reason policy makers are concerned about the strength of the rebound from the 2007-2009 financial crisis?

Accepted Answer

A) Banks would make credit expensive and difficult to obtain 
B) Investors would be cautious about buying securitized assets 
C) Households would prefer to save more and borrow less 
D) The pace of technological change would slow 
A) Banks would make credit expensive and difficult to obtain 
B) Investors would be cautious about buying securitized assets 
C) Households would prefer to save more and borrow less 
D) The pace of technological change would slow

Question 14

How did lax financial institution regulation in the 1990s actually contribute to the long recession in Japan and the ineffectiveness of expansionary monetary policy?

Accepted Answer

Monetary policymakers cut nominal short-

Question 15

The monetary policy transmission mechanism refers to the concept that monetary policy:

Accepted Answer

A) Always seems to work the way central bankers think it will 
B) Works quickly 
C) Only works through changes consumption and investment 
D) Affects the economy in potentially many ways 
A) Always seems to work the way central bankers think it will 
B) Works quickly 
C) Only works through changes consumption and investment 
D) Affects the economy in potentially many ways

Question 16

The Federal Reserve's surveys of bank loan officers can help the Fed determine whether:

Accepted Answer

A) A drop in the quantity of loans granted resulted from fewer applications or a tightening of credit standards 
B) An increase in the quantity of loans granted resulted from fewer applications or a tightening of credit standards 
C) Climbing interest-rate spreads are the result of more borrowers or fewer loans being granted 
D) An increase in the quantity of new loans was due to a decrease in supply or an increase in demand 
A) A drop in the quantity of loans granted resulted from fewer applications or a tightening of credit standards 
B) An increase in the quantity of loans granted resulted from fewer applications or a tightening of credit standards 
C) Climbing interest-rate spreads are the result of more borrowers or fewer loans being granted 
D) An increase in the quantity of new loans was due to a decrease in supply or an increase in demand

Question 17

The technological changes that seem to be occurring in lending:

Accepted Answer

A) Will not impact the transmission mechanisms of monetary policy 
B) Can reduce the importance of the bank lending channel 
C) Will increase the supply of loans because they eliminate the problems of adverse selection and moral hazard 
D) Will increase the demand for loans because they eliminate the problems of adverse selection and moral hazard 
A) Will not impact the transmission mechanisms of monetary policy 
B) Can reduce the importance of the bank lending channel 
C) Will increase the supply of loans because they eliminate the problems of adverse selection and moral hazard 
D) Will increase the demand for loans because they eliminate the problems of adverse selection and moral hazard

Question 18

Each of the following can contribute to the change in the supply of loans resulting from an interest rate change, except:

Accepted Answer

A) Changes in the percentage of loan payment to income 
B) Changes in the potential of moral hazard 
C) Changes in borrowers' net worth 
D) Increases in the demand for loans 
A) Changes in the percentage of loan payment to income 
B) Changes in the potential of moral hazard 
C) Changes in borrowers' net worth 
D) Increases in the demand for loans

Question 19

Explain how the asset-price channel of monetary policy works in real estate markets.

Accepted Answer

When policymakers lower the short-term i

Question 20

If greater stock prices can lead to greater investment spending, should central bankers ever worry about stock prices becoming too high?

Accepted Answer

Yes they should.If stock prices become i

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

Higher stock prices can lead to greater investment spending by firms because:

If a borrower's net worth increases:

Monetary policy reached its limits of influence in Japan in the late 1990s due to the fact that:

The importance of the bank-lending channel of monetary policy transmission:

Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

Changing short-term interest rates have a(n):

The Federal Reserve's surveys of bank loan officers contain questions about:

The bank-lending channel of monetary policy focuses on:

If an economy is experiencing deflation and the nominal interest rate is zero:

All but which of the following could be adjusted as a means of deflating asset price bubbles?

Bonds must have positive yields because:

If interest rates increase, the supply of loans is likely to:

All but which of the following is a reason policy makers are concerned about the strength of the rebound from the 2007-2009 financial crisis?

How did lax financial institution regulation in the 1990s actually contribute to the long recession in Japan and the ineffectiveness of expansionary monetary policy?

The monetary policy transmission mechanism refers to the concept that monetary policy:

The Federal Reserve's surveys of bank loan officers can help the Fed determine whether:

The technological changes that seem to be occurring in lending:

Each of the following can contribute to the change in the supply of loans resulting from an interest rate change, except:

Explain how the asset-price channel of monetary policy works in real estate markets.

If greater stock prices can lead to greater investment spending, should central bankers ever worry about stock prices becoming too high?

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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