Question 1

Which of the following traditional channels of monetary policy transmission can be described as powerful?

Accepted Answer

A) The interest-rate channel 
B) The exchange-rate channel 
C) Both the interest-rate channel and the exchange-rate channel can be described as very powerful 
D) Neither the interest-rate channel nor the exchange-rate channel can be described as very powerful 
A) The interest-rate channel 
B) The exchange-rate channel 
C) Both the interest-rate channel and the exchange-rate channel can be described as very powerful 
D) Neither the interest-rate channel nor the exchange-rate channel can be described as very powerful

Question 2

Explain why a corporation may find it advantageous to undertake greater investment when the value of its stock shares increase.

Accepted Answer

If the share price of a firm's stock inc

Question 3

Stock prices rise:

Accepted Answer

A) Usually six to twelve months after interest rates are reduced 
B) Immediately after interest rates are increased 
C) In anticipation of an interest rate reduction 
D) Only after people are convinced the central bank interest rate cut is permanent 
A) Usually six to twelve months after interest rates are reduced 
B) Immediately after interest rates are increased 
C) In anticipation of an interest rate reduction 
D) Only after people are convinced the central bank interest rate cut is permanent

Question 4

When faced with inflation above desirable levels, is there anything that policy makers can do about concern that a deep recession will lower inflationary expectations sharply and thereby raise real interest rates in a destabilizing manner?

Accepted Answer

Yes, three things.First, they can set th

Question 5

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

Accepted Answer

A) Quick rebound in the willingness and ability of banks to make loans 
B) Further slowdown in bank lending 
C) Period of rapid economic growth in the early 1990s 
D) Prolonged economic slowdown lasting much of the 1990s 
A) Quick rebound in the willingness and ability of banks to make loans 
B) Further slowdown in bank lending 
C) Period of rapid economic growth in the early 1990s 
D) Prolonged economic slowdown lasting much of the 1990s

Question 6

Why is deflation, combined with a recessionary gap, and a zero nominal interest rate a monetary policymaker's worst nightmare?

Accepted Answer

If we consider this piece-by-piece the a

Question 7

In late 1999, why did it appear the Japanese central bank ran out of policy options?

Accepted Answer

By that time, the central bank had cut t

Question 8

Decreases in the real interest rate will result in a(n):

Accepted Answer

A) Increase in net exports because it will lead to a depreciation of the dollar 
B) Decrease in net exports because it will lead to a depreciation of the dollar 
C) Increase in net exports because it will lead to an appreciation of the dollar 
D) Decrease in net exports because it will lead to an appreciation of the dollar 
A) Increase in net exports because it will lead to a depreciation of the dollar 
B) Decrease in net exports because it will lead to a depreciation of the dollar 
C) Increase in net exports because it will lead to an appreciation of the dollar 
D) Decrease in net exports because it will lead to an appreciation of the dollar

Question 9

The relationship between interest rates and stock prices is referred to as:

Accepted Answer

A) The interest-rate mechanism of monetary policy 
B) The investment-spending mechanism of monetary policy 
C) The wealth-creating mechanism of monetary policy 
D) The asset-price channel of monetary policy 
A) The interest-rate mechanism of monetary policy 
B) The investment-spending mechanism of monetary policy 
C) The wealth-creating mechanism of monetary policy 
D) The asset-price channel of monetary policy

Question 10

Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets as Firm A and the same amount of liabilities but its liabilities are all at fixed interest rates.If the central bank lowers interest rates, everything else constant:

Accepted Answer

A) Firm B's net worth will increase more than Firm A's 
B) Firm A's net worth will increase more than Firm B's 
C) Neither firm's net worth will change 
D) The net worth of both firms will increase and by the same amount 
A) Firm B's net worth will increase more than Firm A's 
B) Firm A's net worth will increase more than Firm B's 
C) Neither firm's net worth will change 
D) The net worth of both firms will increase and by the same amount

Question 11

If the target federal funds rate reaches zero:

Accepted Answer

A) The FOMC would run out of policy options 
B) Monetary policy would no longer be of use 
C) The FOMC would turn to unconventional measures, such as purchasing long-term securities 
D) The FOMC would simply reset the target 
A) The FOMC would run out of policy options 
B) Monetary policy would no longer be of use 
C) The FOMC would turn to unconventional measures, such as purchasing long-term securities 
D) The FOMC would simply reset the target

Question 12

The direct impact on spending of short-term interest rate changes by central banks is:

Accepted Answer

A) Definitely the strongest of all transmission mechanisms 
B) Not that powerful 
C) Only effective for consumption but not investment 
D) Only effective for net exports but not for investment and consumption 
A) Definitely the strongest of all transmission mechanisms 
B) Not that powerful 
C) Only effective for consumption but not investment 
D) Only effective for net exports but not for investment and consumption

Question 13

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

Accepted Answer

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

Question 14

The challenges facing policymakers today include each of the following, except:

Accepted Answer

A) The economy's sustainable growth rate is highly stable 
B) Nominal interest rates cannot fall below zero 
C) Stock and property values are cyclical 
D) The structure of the economy and financial system continues to evolve 
A) The economy's sustainable growth rate is highly stable 
B) Nominal interest rates cannot fall below zero 
C) Stock and property values are cyclical 
D) The structure of the economy and financial system continues to evolve

Question 15

An easing of monetary policy should:

Accepted Answer

A) Increase spending by households and businesses and increase net exports 
B) Raise net exports but lower spending by households and businesses 
C) Decrease spending by households and businesses as well as net exports 
D) Increase investment and household spending but lower net exports 
A) Increase spending by households and businesses and increase net exports 
B) Raise net exports but lower spending by households and businesses 
C) Decrease spending by households and businesses as well as net exports 
D) Increase investment and household spending but lower net exports

Question 16

The balance-sheet channel of monetary policy works because it can:

Accepted Answer

A) Increase a borrower's asset value but not the burden of his/her liabilities 
B) Change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth 
C) Increase a borrower's assets and reduce the cost of his/her liabilities 
D) None of the answers given is correct 
A) Increase a borrower's asset value but not the burden of his/her liabilities 
B) Change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth 
C) Increase a borrower's assets and reduce the cost of his/her liabilities 
D) None of the answers given is correct

Question 17

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

Accepted Answer

A) Canada 
B) United Kingdom 
C) Japan 
D) Turkey 
A) Canada 
B) United Kingdom 
C) Japan 
D) Turkey

Question 18

Stock prices may rise from a reduction in interest rates because:

Accepted Answer

A) The present value of future earnings will increase 
B) Stockholders will expect lower future earnings 
C) Financial market participants are less optimistic about future earnings 
D) The present value of future earnings will decrease 
A) The present value of future earnings will increase 
B) Stockholders will expect lower future earnings 
C) Financial market participants are less optimistic about future earnings 
D) The present value of future earnings will decrease

Question 19

The high rates of inflation that were experienced in the 1970s could partly be blamed on:

Accepted Answer

A) The assumption the economy would continue to grow at the rates that the economy experienced in the 1960s 
B) The Viet Nam war 
C) High oil prices 
D) All of the answers given are correct 
A) The assumption the economy would continue to grow at the rates that the economy experienced in the 1960s 
B) The Viet Nam war 
C) High oil prices 
D) All of the answers given are correct

Question 20

The movement away from bank lending towards asset-backed securities:

Accepted Answer

A) Has increased the importance of the bank-lending channel of monetary policy 
B) Has eliminated the bank-lending channel as a mechanism for monetary policy 
C) Has not affected the importance of the bank-lending channel 
D) Will require the FOMC to rethink the quantitative impact of changing the target federal funds rate 
A) Has increased the importance of the bank-lending channel of monetary policy 
B) Has eliminated the bank-lending channel as a mechanism for monetary policy 
C) Has not affected the importance of the bank-lending channel 
D) Will require the FOMC to rethink the quantitative impact of changing the target federal funds rate

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

Which of the following traditional channels of monetary policy transmission can be described as powerful?

Explain why a corporation may find it advantageous to undertake greater investment when the value of its stock shares increase.

Stock prices rise:

When faced with inflation above desirable levels, is there anything that policy makers can do about concern that a deep recession will lower inflationary expectations sharply and thereby raise real interest rates in a destabilizing manner?

The additional capital requirements put in place following the banking crisis of the 1980s led to a:

Why is deflation, combined with a recessionary gap, and a zero nominal interest rate a monetary policymaker's worst nightmare?

In late 1999, why did it appear the Japanese central bank ran out of policy options?

Decreases in the real interest rate will result in a(n):

The relationship between interest rates and stock prices is referred to as:

If the target federal funds rate reaches zero:

The direct impact on spending of short-term interest rate changes by central banks is:

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

The challenges facing policymakers today include each of the following, except:

An easing of monetary policy should:

The balance-sheet channel of monetary policy works because it can:

During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States?

Stock prices may rise from a reduction in interest rates because:

The high rates of inflation that were experienced in the 1970s could partly be blamed on:

The movement away from bank lending towards asset-backed securities:

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

Filters