Question 1

The Fed's first forward guidance in 2009 was framed in terms of keeping interest rates low

Accepted Answer

A) for an extended period. 
B) at least until a particular date in the future. 
C)  based on outcomes for the unemployment rate and inflation rate. 
D) until the next Presidential election.

Question 2

High-powered money consists of

Accepted Answer

A) bank reserves plus currency held by the nonbank public. 
B) bank reserves minus vault cash. 
C) all deposits at the Fed. 
D) deposits at the Fed plus vault cash.

Question 3

Monetarists argued that the Fed wasn't serious about adhering to a money-growth target because

Accepted Answer

A) it was unable to reduce inflation at all. 
B) it tried to target three different monetary aggregates simultaneously. 
C) the sacrifice ratio remained too high. 
D) it gave too much weight to movements in exchange rates.

Question 4

Suppose that in Mysore,the reserve-deposit ratio is res = 0.5 - 2i,
Where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function
L(Y,i)= 0.5Y - 10i,
Where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money supply equals

Accepted Answer

A) 200. 
B) 240. 
C) 300. 
D) 400.

Question 5

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $30 million,and bank deposits are $100 million.The money multiplier is equal to

Accepted Answer

A) 2)5. 
B) 3)0. 
C) 4)0. 
D) 5)0.

Question 6

Suppose the reserve-deposit ratio is
res = 0.5 - 2 i,
where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function
L(Y,i)= 0.5Y - 10 i,
where Y is real output.Currently the real interest rate is 5% and the economy expects an inflation rate of 5%.Assume the price level P is equal to 1.
(a)Calculate the money multiplier.
(b)Calculate the reserve-deposit ratio.
(c)Calculate the money supply.
(d)Calculate the value of output Y that clears the asset market.

Accepted Answer

The answer of Suppose the reserve-deposit ratio is
res = 0.5...

Question 7

The Federal funds market is a market for trading funds between

Accepted Answer

A) a bank and a multinational corporation. 
B) a bank and the government. 
C) a bank and another bank. 
D) a bank and the Federal Reserve Bank.

Question 8

The Fed's tools are also known as

Accepted Answer

A) goals. 
B) intermediate targets. 
C) instruments. 
D) derivatives.

Question 9

From 2008 to 2014,the Fed engage in ________ rounds of quantitative easing.

Accepted Answer

A) 1) 
B) 2) 
C) 3) 
D) 4)

Question 10

The problem with the strategy of achieving credibility through reputation is that

Accepted Answer

A) reputations are rarely credible. 
B) reputations lack any commitment. 
C) serious costs may be incurred during the period in which reputation is established. 
D) rules always have a lower cost than reputations in maintaining credibility.

Question 11

When the central bank announces the inflation rate that it will achieve over the next one to four years,it is following a strategy known as

Accepted Answer

A) money targeting. 
B) inflation targeting. 
C) a currency board. 
D) real business cycle targeting.

Question 12

When the Fed alters the types of assets it owns,it is engaging in

Accepted Answer

A) international balance management. 
B) forward guidance. 
C) quantitative easing. 
D) changing the discount rate.

Question 13

When the Fed sells short-term bonds and buys long-term bonds,it is engaging in

Accepted Answer

A) changing the discount rate. 
B) forward guidance. 
C) backward guidance. 
D) a maturity extension program.

Question 14

Suppose there was a banking crisis.The money supply would shrink by the greatest amount if the public ________ their currency-deposit ratio and the banks ________ their reserve-deposit ratio.

Accepted Answer

A) decreased; decreased 
B) decreased; increased 
C) increased; decreased 
D) increased; increased

Question 15

When the Fed signals how long it expects interest rates to remain at a low level,it is said to be engaging in

Accepted Answer

A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) a maturity extension program.

Question 16

Based on the Taylor rule,in the 1980s,monetary policy was

Accepted Answer

A) too tight. 
B) too easy. 
C) just about right. 
D) too tight in the first half of the decade and too easy in the second half.

Question 17

Describe the difference between a primary credit discount rate and the secondary credit discount rate,including who can borrow at which rate and how such lending is managed by the Fed.

Accepted Answer

The answer of Describe the difference between a primary credit...

Question 18

The currency-deposit ratio is determined by

Accepted Answer

A) banks. 
B) the public. 
C) the Federal Reserve. 
D) Congress.

Question 19

In response to an unanticipated easing of monetary policy,the Fed funds rate ________ at first,then ________ after 6 to 12 months.

Accepted Answer

A) rises; returns most of the way to its original value 
B) falls; returns most of the way to its original value 
C) remains roughly unchanged; rises significantly 
D) remains roughly unchanged; falls significantly

Question 20

If a bank borrows from a Federal Reserve Bank,the interest rate is called

Accepted Answer

A) the prime rate. 
B) the discount rate. 
C) the Fed funds rate. 
D) the reserve availability rate.

Exam 14: Monetary Policy and the Federal Reserve System