Question 1

Whenever central bankers face more than one goal, the policy framework requires:

Accepted Answer

A) The central bank to always focus on inflation first 
B) Central bankers to focus on all goals, no matter what 
C) Economic growth to be the top priority 
D) Central bankers to make their priorities clear 
A) The central bank to always focus on inflation first 
B) Central bankers to focus on all goals, no matter what 
C) Economic growth to be the top priority 
D) Central bankers to make their priorities clear

Question 2

The text points out that the apparent result of central bank independence has been better performing economies.Why do you think it took so long for many countries to create independent central banks?

Accepted Answer

One reason is that central banks were cr

Question 3

The ability to print money means the central bank can control:

Accepted Answer

A) The availability of money and credit in a country's economy 
B) Tax revenue 
C) The unemployment rate 
D) Government expenditures 
A) The availability of money and credit in a country's economy 
B) Tax revenue 
C) The unemployment rate 
D) Government expenditures

Question 4

The chairman of the Fed gives a speech and hints that, at the next meeting of the Open Market Committee, the issues of a rapidly growing economy and preliminary indications of rising prices will have to be addressed.You are in the market for a new house and your mortgage broker calls to tell you that the interest rate on the $100,000, 30-year mortgage you applied for has just increased by a quarter of a percent.Why did the rate increase even though the Fed has not announced any rate change?

Accepted Answer

The rate increased because many people i

Question 5

Which of the following is the best analogy? Inflation is like:

Accepted Answer

A) A pound having more ounces 
B) A day having more hours 
C) A minute having fewer seconds 
D) A mile having more feet 
A) A pound having more ounces 
B) A day having more hours 
C) A minute having fewer seconds 
D) A mile having more feet

Question 6

What are the specific objectives of most central bankers?

Accepted Answer

Most central bankers pursue five specifi

Question 7

What are the potential problems that can result if central bankers set a target of a zero rate of inflation?

Accepted Answer

A zero inflation target has a few proble

Question 8

Central banks often find:

Accepted Answer

A) They can efficiently pursue all of their goals simultaneously 
B) There are tradeoffs that make pursuing all of their goals simultaneously impossible 
C) The goal(s) they pursue will be determined by stock market behavior 
D) They must keep their goals secret or else they cannot be attained 
A) They can efficiently pursue all of their goals simultaneously 
B) There are tradeoffs that make pursuing all of their goals simultaneously impossible 
C) The goal(s) they pursue will be determined by stock market behavior 
D) They must keep their goals secret or else they cannot be attained

Question 9

In the U.S., real growth usually averages around:

Accepted Answer

A) 3 percent per year 
B) 1 percent per year 
C) 5 percent per year 
D) 7 percent per year 
A) 3 percent per year 
B) 1 percent per year 
C) 5 percent per year 
D) 7 percent per year

Question 10

Which of the following statements is most accurate?

Accepted Answer

A) Central bank statements in developed countries are similar both in length and in the speed with which policy changes are announced 
B) Central bank statements in developed countries differ both in length and in the speed with which policy changes are announced 
C) Central bank statements in developed countries are similar in length but differ in the speed with which policy changes are announced 
D) Central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced 
A) Central bank statements in developed countries are similar both in length and in the speed with which policy changes are announced 
B) Central bank statements in developed countries differ both in length and in the speed with which policy changes are announced 
C) Central bank statements in developed countries are similar in length but differ in the speed with which policy changes are announced 
D) Central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced

Question 11

The main problem from inflation as seen by most economists is:

Accepted Answer

A) Inflation raises prices more than wages 
B) Inflation harms lenders more than it benefits borrowers 
C) During periods of inflation some prices fall 
D) Inflation creates risk 
A) Inflation raises prices more than wages 
B) Inflation harms lenders more than it benefits borrowers 
C) During periods of inflation some prices fall 
D) Inflation creates risk

Question 12

Beginning in June of 2004 and for the next eleven months, the Federal Reserve:

Accepted Answer

A) Lowered the target interest rate eleven times 
B) Raised the target interest rate seventeen times 
C) Lowered the target interest rate six times 
D) Kept the target interest rate constant 
A) Lowered the target interest rate eleven times 
B) Raised the target interest rate seventeen times 
C) Lowered the target interest rate six times 
D) Kept the target interest rate constant

Question 13

Which of the following statements regarding growth was brought out from the material in Chapter 15?

Accepted Answer

A) Stability results in higher output growth rates 
B) Output volatility results in higher output growth rates 
C) There is no correlation between the volatility in growth rates and annual output growth 
D) The more volatile the growth rate, the higher is the annual output growth 
A) Stability results in higher output growth rates 
B) Output volatility results in higher output growth rates 
C) There is no correlation between the volatility in growth rates and annual output growth 
D) The more volatile the growth rate, the higher is the annual output growth

Question 14

Most economists agree that the target rate of inflation for the central banks should be:

Accepted Answer

A) Between 7 and 9 percent 
B) Less than zero 
C) Not zero for fears of deflation 
D) Something over 3 but less than 6 percent 
A) Between 7 and 9 percent 
B) Less than zero 
C) Not zero for fears of deflation 
D) Something over 3 but less than 6 percent

Question 15

One of the specific goals for central bankers is financial system stability.Considering the U.S., for example, would this imply that the Federal Reserve would always take action to prevent any single bank from failing? Explain.

Accepted Answer

Not likely.What the Fed would be concern

Question 16

The idea that central banks should be independent of political pressure is an idea that:

Accepted Answer

A) Has been around since there were central banks 
B) Is relatively new 
C) Every central bank was founded upon 
D) Became quite popular in the early 1900s 
A) Has been around since there were central banks 
B) Is relatively new 
C) Every central bank was founded upon 
D) Became quite popular in the early 1900s

Question 17

Why do you think price stability is the major goal for almost every central banker?

Accepted Answer

We saw in the chapter that most central

Question 18

Explain why it is correct to say the Federal Reserve functions as the government's bank but it is incorrect to say it controls the government's budget.

Accepted Answer

In its role as the government's bank, th

Question 19

Explain why inflation degrades the information content of prices.

Accepted Answer

For markets to work efficiently, prices

Question 20

The correlation between high rates of inflation and economic growth is:

Accepted Answer

A) Direct; one brings about the other 
B) Inverse; high inflation usually means low economic growth 
C) There is no correlation between these measures 
D) Is direct at low rates of economic growth and inverse at high rates 
A) Direct; one brings about the other 
B) Inverse; high inflation usually means low economic growth 
C) There is no correlation between these measures 
D) Is direct at low rates of economic growth and inverse at high rates

Exam 15: Central Banks in the World Today

Whenever central bankers face more than one goal, the policy framework requires:

The text points out that the apparent result of central bank independence has been better performing economies.Why do you think it took so long for many countries to create independent central banks?

The ability to print money means the central bank can control:

Which of the following is the best analogy? Inflation is like:

What are the specific objectives of most central bankers?

What are the potential problems that can result if central bankers set a target of a zero rate of inflation?

Central banks often find:

In the U.S., real growth usually averages around:

Which of the following statements is most accurate?

The main problem from inflation as seen by most economists is:

Beginning in June of 2004 and for the next eleven months, the Federal Reserve:

Which of the following statements regarding growth was brought out from the material in Chapter 15?

Most economists agree that the target rate of inflation for the central banks should be:

One of the specific goals for central bankers is financial system stability.Considering the U.S., for example, would this imply that the Federal Reserve would always take action to prevent any single bank from failing? Explain.

The idea that central banks should be independent of political pressure is an idea that:

Why do you think price stability is the major goal for almost every central banker?

Explain why it is correct to say the Federal Reserve functions as the government's bank but it is incorrect to say it controls the government's budget.

Explain why inflation degrades the information content of prices.

The correlation between high rates of inflation and economic growth is:

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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