Question 1

Primary dealers are those

Accepted Answer

A)  permitted to trade directly with the Fed. 
B)  who work under the account manager at the Federal Reserve Bank of New York. 
C)  who specialize in selling bonds to small private investors. 
D)  responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline. 
A)  permitted to trade directly with the Fed. 
B)  who work under the account manager at the Federal Reserve Bank of New York. 
C)  who specialize in selling bonds to small private investors. 
D)  responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline. A

Question 2

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

Accepted Answer

A)  the unemployment rate will be zero. 
B)  unemployment is at its natural rate. 
C)  the economy will be experiencing high rates of inflation. 
D)  frictional unemployment will be zero. 
A)  the unemployment rate will be zero. 
B)  unemployment is at its natural rate. 
C)  the economy will be experiencing high rates of inflation. 
D)  frictional unemployment will be zero. B

Question 3

In order to increase its target for the federal funds rate,the Fed would normally

Accepted Answer

A)  conduct open market sales. 
B)  conduct open market purchases. 
C)  increase the discount rate. 
D)  increase reserve requirements. 
A)  conduct open market sales. 
B)  conduct open market purchases. 
C)  increase the discount rate. 
D)  increase reserve requirements. A

Question 4

If the FOMC's directive indicates a change in monetary policy,the account manager at the Fed's Open Market Trading Desk must

Accepted Answer

A)  design dynamic open market operations. 
B)  design defensive open market operations. 
C)  seek approval of the change from the Secretary of the Treasury. 
D)  seek approval of the change from a majority of the presidents of the Federal Reserve district banks. 
A)  design dynamic open market operations. 
B)  design defensive open market operations. 
C)  seek approval of the change from the Secretary of the Treasury. 
D)  seek approval of the change from a majority of the presidents of the Federal Reserve district banks.

Question 5

A Federal Reserve repurchase agreement involves

Accepted Answer

A)  an agreement by a bank to repay a discount loan on a specific day. 
B)  an agreement by a dealer to buy back securities she has sold to the Fed. 
C)  an agreement between the Fed and the Treasury for the Fed to purchase a specified amount of Treasury securities. 
D)  an agreement by a commercial bank to make a loan to another bank in the federal funds market. 
A)  an agreement by a bank to repay a discount loan on a specific day. 
B)  an agreement by a dealer to buy back securities she has sold to the Fed. 
C)  an agreement between the Fed and the Treasury for the Fed to purchase a specified amount of Treasury securities. 
D)  an agreement by a commercial bank to make a loan to another bank in the federal funds market.

Question 6

Which chair of the Fed advocated that the Fed engage in inflation targeting?

Accepted Answer

A)  Greenspan 
B)  Bernanke 
C)  Volcker 
D)  Martin 
A)  Greenspan 
B)  Bernanke 
C)  Volcker 
D)  Martin

Question 7

John Smith leaves his job in New York to go to California in hopes of finding a better one.If John Smith is unemployed while searching for a job in California,economists would consider him to be

Accepted Answer

A)  frictionally unemployed. 
B)  structurally unemployed. 
C)  cyclically unemployed. 
D)  naturally unemployed. 
A)  frictionally unemployed. 
B)  structurally unemployed. 
C)  cyclically unemployed. 
D)  naturally unemployed.

Question 8

All of the following arguments are presented in favor of inflation targeting EXCEPT

Accepted Answer

A)  it would draw attention to what the central bank can achieve in practice. 
B)  it would provide an anchor for inflationary expectations. 
C)  it would promote accountability by providing a yardstick by which policy can be measured. 
D)  it would reduce the lags inherent in monetary policy. 
A)  it would draw attention to what the central bank can achieve in practice. 
B)  it would provide an anchor for inflationary expectations. 
C)  it would promote accountability by providing a yardstick by which policy can be measured. 
D)  it would reduce the lags inherent in monetary policy.

Question 9

The Fed's goal of interest rate stability

Accepted Answer

A)  was formally abandoned in 1998. 
B)  is motivated by political pressure as well as by a desire for a stable saving and investment environment. 
C)  is undermined by actions the Fed takes to further its goal of stability in financial markets and institutions. 
D)  is undermined by actions the Fed takes to further its goal of price stability. 
A)  was formally abandoned in 1998. 
B)  is motivated by political pressure as well as by a desire for a stable saving and investment environment. 
C)  is undermined by actions the Fed takes to further its goal of stability in financial markets and institutions. 
D)  is undermined by actions the Fed takes to further its goal of price stability.

Question 10

The Fed

Accepted Answer

A)  controls discount policy more completely than it controls open market operations. 
B)  must abide by discount rates set by Congress. 
C)  controls discount policy less completely than it controls open market operations. 
D)  controls discount policy completely, just as it controls open market operations. 
A)  controls discount policy more completely than it controls open market operations. 
B)  must abide by discount rates set by Congress. 
C)  controls discount policy less completely than it controls open market operations. 
D)  controls discount policy completely, just as it controls open market operations.

Question 11

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel.Sally Jones is considered by economists to be

Accepted Answer

A)  naturally unemployed. 
B)  cyclically unemployed. 
C)  structurally unemployed. 
D)  frictionally unemployed. 
A)  naturally unemployed. 
B)  cyclically unemployed. 
C)  structurally unemployed. 
D)  frictionally unemployed.

Question 12

The unemployment that is caused by changes in the economy,such as shifts in manufacturing techniques,increased use of computers and electronic machines,and increases in the production of services instead of goods,is called

Accepted Answer

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

Question 13

In a matched sale-purchase transaction,the Fed

Accepted Answer

A)  buys securities from a dealer and the dealer agrees to buy them back. 
B)  sells securities to a dealer and the dealer agrees to sell them back. 
C)  buys securities from one dealer and sells the same dollar amount of securities to another dealer. 
D)  sells securities to one dealer and buys the same dollar amount of securities from another dealer. 
A)  buys securities from a dealer and the dealer agrees to buy them back. 
B)  sells securities to a dealer and the dealer agrees to sell them back. 
C)  buys securities from one dealer and sells the same dollar amount of securities to another dealer. 
D)  sells securities to one dealer and buys the same dollar amount of securities from another dealer.

Question 14

What is quantitative easing? What was the Fed's objective in implementing quantitative easing?

Accepted Answer

Quantitative easing is a policy when a c

Question 15

Which of the following is considered to be a goal of monetary policy?

Accepted Answer

A)  a low federal budget deficit 
B)  fair wages 
C)  price stability 
D)  an end to poverty 
A)  a low federal budget deficit 
B)  fair wages 
C)  price stability 
D)  an end to poverty

Question 16

Which of the following statements about the natural rate of unemployment is correct?

Accepted Answer

A)  Currently, most economists think that the natural rate is between 5% and 6%. 
B)  Currently, most economists believe the natural rate is zero. 
C)  When unemployment is at its natural rate, then only frictional unemployment remains. 
D)  When unemployment is at its natural rate, then only structural unemployment remains. 
A)  Currently, most economists think that the natural rate is between 5% and 6%. 
B)  Currently, most economists believe the natural rate is zero. 
C)  When unemployment is at its natural rate, then only frictional unemployment remains. 
D)  When unemployment is at its natural rate, then only structural unemployment remains.

Question 17

How many times has the Fed has changed reserve requirements since 1995?

Accepted Answer

A)  never. 
B)  about once a year. 
C)  only once. 
D)  only twice. 
A)  never. 
B)  about once a year. 
C)  only once. 
D)  only twice.

Question 18

Which of the following is an operating target?

Accepted Answer

A)  M1 
B)  M2 
C)  nonborrowed reserves 
D)  the inflation rate 
A)  M1 
B)  M2 
C)  nonborrowed reserves 
D)  the inflation rate

Question 19

All of the following arguments are made against inflation targeting EXCEPT

Accepted Answer

A)  rigid numerical targets would diminish the flexibility of monetary policy. 
B)  the Fed would need to depend on future forecasts of inflation since monetary policy acts with a lag. 
C)  the Fed has little influence on inflation. 
D)  Holding the Fed accountable for low inflation may make it difficult for elected officials to monitor whether the Fed is supporting good overall economic policy. 
A)  rigid numerical targets would diminish the flexibility of monetary policy. 
B)  the Fed would need to depend on future forecasts of inflation since monetary policy acts with a lag. 
C)  the Fed has little influence on inflation. 
D)  Holding the Fed accountable for low inflation may make it difficult for elected officials to monitor whether the Fed is supporting good overall economic policy.

Question 20

If the account manager does not use a Federal Reserve repurchase agreement or a matched sale-purchase transaction in carrying out open market operations,he will use

Accepted Answer

A)  an outright purchase or sale. 
B)  a limited-duration purchase or sale. 
C)  an indirect purchase or sale. 
D)  a reverse duration purchase or sale. 
A)  an outright purchase or sale. 
B)  a limited-duration purchase or sale. 
C)  an indirect purchase or sale. 
D)  a reverse duration purchase or sale.

Primary dealers are those

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

In order to increase its target for the federal funds rate,the Fed would normally

If the FOMC's directive indicates a change in monetary policy,the account manager at the Fed's Open Market Trading Desk must

A Federal Reserve repurchase agreement involves

Which chair of the Fed advocated that the Fed engage in inflation targeting?

John Smith leaves his job in New York to go to California in hopes of finding a better one.If John Smith is unemployed while searching for a job in California,economists would consider him to be

All of the following arguments are presented in favor of inflation targeting EXCEPT

The Fed's goal of interest rate stability

The Fed

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel.Sally Jones is considered by economists to be

The unemployment that is caused by changes in the economy,such as shifts in manufacturing techniques,increased use of computers and electronic machines,and increases in the production of services instead of goods,is called

In a matched sale-purchase transaction,the Fed

What is quantitative easing? What was the Fed's objective in implementing quantitative easing?

Which of the following is considered to be a goal of monetary policy?

Which of the following statements about the natural rate of unemployment is correct?

How many times has the Fed has changed reserve requirements since 1995?

Which of the following is an operating target?

All of the following arguments are made against inflation targeting EXCEPT

If the account manager does not use a Federal Reserve repurchase agreement or a matched sale-purchase transaction in carrying out open market operations,he will use

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 15: Monetary Policy

Primary dealers are those

When all workers who want jobs have them and the demand for and supply of labor are in equilibrium,

In order to increase its target for the federal funds rate,the Fed would normally

If the FOMC's directive indicates a change in monetary policy,the account manager at the Fed's Open Market Trading Desk must

A Federal Reserve repurchase agreement involves

Which chair of the Fed advocated that the Fed engage in inflation targeting?

John Smith leaves his job in New York to go to California in hopes of finding a better one.If John Smith is unemployed while searching for a job in California,economists would consider him to be

All of the following arguments are presented in favor of inflation targeting EXCEPT

The Fed's goal of interest rate stability

The Fed

Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel.Sally Jones is considered by economists to be

The unemployment that is caused by changes in the economy,such as shifts in manufacturing techniques,increased use of computers and electronic machines,and increases in the production of services instead of goods,is called

In a matched sale-purchase transaction,the Fed

What is quantitative easing? What was the Fed's objective in implementing quantitative easing?

Which of the following is considered to be a goal of monetary policy?

Which of the following statements about the natural rate of unemployment is correct?

How many times has the Fed has changed reserve requirements since 1995?

Which of the following is an operating target?

All of the following arguments are made against inflation targeting EXCEPT

If the account manager does not use a Federal Reserve repurchase agreement or a matched sale-purchase transaction in carrying out open market operations,he will use

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters