Question 1

Discuss how the monetary policy of the European Central Bank is similar to the U.S. How are they different?

Accepted Answer

The answer of Discuss how the monetary policy of the...

Question 2

Decreased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers is an element of inflation targeting.

Accepted Answer

A) True 
 B)False

Question 3

If the Federal Reserve wants to expand reserves in the banking system, it will

Accepted Answer

A) purchase government securities. 
B) raise the discount rate. 
C) sell government securities. 
D) raise reserve requirements. 
A) purchase government securities. 
B) raise the discount rate. 
C) sell government securities. 
D) raise reserve requirements.

Question 4

Flexibility is a requirement in selecting an intermediate target.

Accepted Answer

A) True 
 B)False

Question 5

Describe and discuss Chairman Bernanke's views on inflation targeting and transparency in central banking.

Accepted Answer

The answer of Describe and discuss Chairman Bernanke's views on...

Question 6

Describe an asset-price bubble.

Accepted Answer

An asset-price bubble occurs when the pr

Question 7

Open market purchases by the Fed increase the supply of nonborrowed reserves.

Accepted Answer

A) True 
 B)False

Question 8

An open market transaction intended to change the level of bank reserves is a

Accepted Answer

A) repurchase agreement. 
B) reverse repo. 
C) dynamic operation. 
D) defensive operation. 
A) repurchase agreement. 
B) reverse repo. 
C) dynamic operation. 
D) defensive operation.

Question 9

Assets on the Fed's balance sheet include

Accepted Answer

A) government securities and currency in circulation. 
B) discount loans and reserves. 
C) government securities and discount loans. 
D) currency in circulation and reserves. 
A) government securities and currency in circulation. 
B) discount loans and reserves. 
C) government securities and discount loans. 
D) currency in circulation and reserves.

Question 10

When there is a mismatch between job requirements and the skills of available workers, the resulting unemployment is called

Accepted Answer

A) structural unemployment. 
B) frictional unemployment. 
C) cyclical unemployment. 
D) underemployment. 
A) structural unemployment. 
B) frictional unemployment. 
C) cyclical unemployment. 
D) underemployment.

Question 11

Disadvantages of using reserve requirements to control the money supply include

Accepted Answer

A) their overly-powerful impact on the money supply. 
B) creating potential liquidity problems for banks with high levels of excess reserves. 
C) their overly-powerful impact on the monetary base. 
D) all of the above. 
A) their overly-powerful impact on the money supply. 
B) creating potential liquidity problems for banks with high levels of excess reserves. 
C) their overly-powerful impact on the monetary base. 
D) all of the above.

Question 12

An open market sale leads to an expansion of reserves and deposits in the banking system and hence to a decline in the monetary base and the money supply.

Accepted Answer

A) True 
 B)False

Question 13

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the

Accepted Answer

A) frictional rate of unemployment. 
B) structural rate of unemployment. 
C) natural rate of unemployment. 
D) ideal rate of unemployment. 
A) frictional rate of unemployment. 
B) structural rate of unemployment. 
C) natural rate of unemployment. 
D) ideal rate of unemployment.

Question 14

Compare the advantages and disadvantages of monetary targeting and inflation targeting.

Accepted Answer

The answer of Compare the advantages and disadvantages of monetary...

Question 15

Holding everything else constant, if the federal funds rate falls, then the demand for

Accepted Answer

A) excess reserves falls because they have a lower return. 
B) excess reserves rises because they have a lower cost. 
C) required reserves rises because the cost of borrowing from the Fed is relatively higher. 
D) required reserves rises because the cost of borrowing from the Fed is relatively lower. 
E) reserves will not change because the Fed sets the level of required reserves. 
A) excess reserves falls because they have a lower return. 
B) excess reserves rises because they have a lower cost. 
C) required reserves rises because the cost of borrowing from the Fed is relatively higher. 
D) required reserves rises because the cost of borrowing from the Fed is relatively lower. 
E) reserves will not change because the Fed sets the level of required reserves.

Question 16

Which of the following is not a requirement in selecting an intermediate target?

Accepted Answer

A) measurability 
B) controllability 
C) flexibility 
D) predictability 
A) measurability 
B) controllability 
C) flexibility 
D) predictability

Question 17

The discount rate is an operating target.

Accepted Answer

A) True 
 B)False

Question 18

The Fed's monetary policy strategy can be described as follows:

Accepted Answer

A) The Fed uses its policy tools to adjust intermediate targets that directly impact its operating targets in a way that allows the Fed to achieve its goals. 
B) The Fed uses its policy tools to adjust operating targets that directly impact its intermediate targets in a way that allows the Fed to achieve its goals. 
C) The Fed uses its operating targets to adjust its intermediate targets that directly impact its policy tools in a way that allows the Fed to achieve its goals. 
D) None of the above. 
A) The Fed uses its policy tools to adjust intermediate targets that directly impact its operating targets in a way that allows the Fed to achieve its goals. 
B) The Fed uses its policy tools to adjust operating targets that directly impact its intermediate targets in a way that allows the Fed to achieve its goals. 
C) The Fed uses its operating targets to adjust its intermediate targets that directly impact its policy tools in a way that allows the Fed to achieve its goals. 
D) None of the above.

Question 19

The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed

Accepted Answer

A) raises reserves requirements. 
B) does an open market purchase. 
C) does an open market sale. 
D) raises the discount rate. 
A) raises reserves requirements. 
B) does an open market purchase. 
C) does an open market sale. 
D) raises the discount rate.

Question 20

The type of open market operation intended to offset movements in other factors that affect reserves and the monetary base is

Accepted Answer

A) the dynamic open market operations. 
B) the defensive open market operations. 
C) the reserve requirements. 
D) market equilibrium. 
A) the dynamic open market operations. 
B) the defensive open market operations. 
C) the reserve requirements. 
D) market equilibrium.

Exam 10: Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

Discuss how the monetary policy of the European Central Bank is similar to the U.S. How are they different?

Decreased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers is an element of inflation targeting.

If the Federal Reserve wants to expand reserves in the banking system, it will

Flexibility is a requirement in selecting an intermediate target.

Describe and discuss Chairman Bernanke's views on inflation targeting and transparency in central banking.

Describe an asset-price bubble.

Open market purchases by the Fed increase the supply of nonborrowed reserves.

An open market transaction intended to change the level of bank reserves is a

Assets on the Fed's balance sheet include

When there is a mismatch between job requirements and the skills of available workers, the resulting unemployment is called

Disadvantages of using reserve requirements to control the money supply include

An open market sale leads to an expansion of reserves and deposits in the banking system and hence to a decline in the monetary base and the money supply.

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the

Compare the advantages and disadvantages of monetary targeting and inflation targeting.

Holding everything else constant, if the federal funds rate falls, then the demand for

Which of the following is not a requirement in selecting an intermediate target?

The discount rate is an operating target.

The Fed's monetary policy strategy can be described as follows:

The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed

The type of open market operation intended to offset movements in other factors that affect reserves and the monetary base is

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

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