Question 1

Today there is a clear consensus about the best way to design a central bank.What are the criteria for a successful central bank?

Accepted Answer

To be successful, a central bank must (1) be independent of political pressures; (2) make decisions by committee; (3) be accountable to the public and transparent in communicating its policy actions and (4) operate within an explicit framework that clearly states its goals and makes clear the tradeoffs among them.

Question 2

What are the operational components of central bank independence?

Accepted Answer

There are two operational components of central bank independence.The first is that monetary policymakers must be free to control their own budgets.Second, the bank's policies must not be reversible by people outside the central bank.Long terms also foster central bank independence in insulating bank officials from political pressure.

Question 3

The efficient allocation of resources requires:

Accepted Answer

A) That prices reflect the relative value of goods and services 
B) That inflation not exceed three percent a year 
C) Deflation 
D) Prices to remain constant 
A) That prices reflect the relative value of goods and services 
B) That inflation not exceed three percent a year 
C) Deflation 
D) Prices to remain constant A

Question 4

Chapter 15 discussed the relationship between the level and volatility of growth.What is that relationship and is its causality clear? Explain.

Accepted Answer

The relationship or correlation that is

Question 5

Federal Reserve monetary policy during 2004 showed that:

Accepted Answer

A) Monetary policy is always stable 
B) Monetary policy goals are consistent 
C) Sometimes monetary policy goals can conflict 
D) The Federal Reserve will always favor stable interest rates over economic growth 
A) Monetary policy is always stable 
B) Monetary policy goals are consistent 
C) Sometimes monetary policy goals can conflict 
D) The Federal Reserve will always favor stable interest rates over economic growth

Question 6

Which is a function of modern central banks?

Accepted Answer

A) To control securities markets 
B) To control the government's budget 
C) To control the availability of money and credit 
D) To manage fiscal policy 
A) To control securities markets 
B) To control the government's budget 
C) To control the availability of money and credit 
D) To manage fiscal policy

Question 7

If prices are not stable:

Accepted Answer

A) Money becomes less useful as a store of value 
B) Money performs better as a unit of account 
C) It may be an inconvenience, but resources are still allocated efficiently 
D) Prices become highly useful for conveying information 
A) Money becomes less useful as a store of value 
B) Money performs better as a unit of account 
C) It may be an inconvenience, but resources are still allocated efficiently 
D) Prices become highly useful for conveying information

Question 8

In 2009, the average daily volume on the Federal Reserve's Fedwire system was:

Accepted Answer

A) $25 billion 
B) $250 billion 
C) $2.5 trillion 
D) $250 million 
A) $25 billion 
B) $250 billion 
C) $2.5 trillion 
D) $250 million

Question 9

One reason for having a monetary policy framework is:

Accepted Answer

A) It makes clear what specific goals the central bankers are pursuing 
B) It provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets 
C) It provides central bankers the secrecy needed to perform their jobs effectively 
D) It can make goal setting vague enough so that the central bankers can always claim success 
A) It makes clear what specific goals the central bankers are pursuing 
B) It provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets 
C) It provides central bankers the secrecy needed to perform their jobs effectively 
D) It can make goal setting vague enough so that the central bankers can always claim success

Question 10

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 11

One problem for the Federal Reserve regarding setting policy stems from the fact that:

Accepted Answer

A) There are multiple goals that may be inconsistent with each other 
B) There are more policy instruments than goals 
C) Congress sets very tight goal ranges that the central bankers must hit 
D) The membership of its governing board changes so often 
A) There are multiple goals that may be inconsistent with each other 
B) There are more policy instruments than goals 
C) Congress sets very tight goal ranges that the central bankers must hit 
D) The membership of its governing board changes so often

Question 12

Imagine a central banker who takes office believing that, ultimately, the best way to stimulate an economy is to keep people guessing.This means the policymaker will often, but not always, announce one change but then actually do something else.What do you think of the central bank's chances for achieving its objectives and why?

Accepted Answer

This violates one of the requirements of

Question 13

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 14

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 15

The means for assuring accountability and transparency:

Accepted Answer

A) Are different across the central banks of most countries 
B) Are the same for all successful central banks 
C) Involve setting specific numerical targets so there is no confusion as to what the goal is 
D) Are opposite to each other; increasing one means decreasing the other 
A) Are different across the central banks of most countries 
B) Are the same for all successful central banks 
C) Involve setting specific numerical targets so there is no confusion as to what the goal is 
D) Are opposite to each other; increasing one means decreasing the other

Question 16

Compared to an independent central bank, elected officials are likely to:

Accepted Answer

A) Favor long-run stability over short-term prosperity 
B) Favor short-term prosperity over short-run stability 
C) Choose monetary policies that are overly accommodative 
D) Prefer interest rates to vary more often 
A) Favor long-run stability over short-term prosperity 
B) Favor short-term prosperity over short-run stability 
C) Choose monetary policies that are overly accommodative 
D) Prefer interest rates to vary more often

Question 17

Setting an explicit numerical inflation target is most associated with the goal(s) of:

Accepted Answer

A) Transparency 
B) Accountability 
C) Both transparency and accountability 
D) Neither transparency nor accountability; it's about moral hazard 
A) Transparency 
B) Accountability 
C) Both transparency and accountability 
D) Neither transparency nor accountability; it's about moral hazard

Question 18

During the financial crisis of 2007-2009 the US Federal Reserve used its powers in all but which of the following ways:

Accepted Answer

A) lending to nonbanks 
B) purchased commercial paper from nonfinancial firms 
C) lowered bank reserve requirements 
D) lowered its policy rate to zero 
A) lending to nonbanks 
B) purchased commercial paper from nonfinancial firms 
C) lowered bank reserve requirements 
D) lowered its policy rate to zero

Question 19

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 20

The specific goals of central banks include each of the following, except:

Accepted Answer

A) High and stable real growth 
B) Low and stable inflation 
C) High levels of exports 
D) Low and stable unemployment 
A) High and stable real growth 
B) Low and stable inflation 
C) High levels of exports 
D) Low and stable unemployment

Exam 15: Central Banks in the World Today

Today there is a clear consensus about the best way to design a central bank.What are the criteria for a successful central bank?

What are the operational components of central bank independence?

The efficient allocation of resources requires:

Chapter 15 discussed the relationship between the level and volatility of growth.What is that relationship and is its causality clear? Explain.

Federal Reserve monetary policy during 2004 showed that:

Which is a function of modern central banks?

If prices are not stable:

In 2009, the average daily volume on the Federal Reserve's Fedwire system was:

One reason for having a monetary policy framework is:

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:

One problem for the Federal Reserve regarding setting policy stems from the fact that:

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

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.

The means for assuring accountability and transparency:

Compared to an independent central bank, elected officials are likely to:

Setting an explicit numerical inflation target is most associated with the goal(s) of:

During the financial crisis of 2007-2009 the US Federal Reserve used its powers in all but which of the following ways:

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

The specific goals of central banks include each of the following, except:

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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