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

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

The answer of The text points out that the apparent...

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

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 answer of The chairman of the Fed gives a...

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

Question 6

What are the specific objectives of most central bankers?

Accepted Answer

The answer of What are the specific objectives of most...

Question 7

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

Accepted Answer

The answer of What are the potential problems that can...

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

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

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

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

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

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

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

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

The answer of One of the specific goals for central...

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

Question 17

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

Accepted Answer

The answer of Why do you think price stability is...

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

The answer of Explain why it is correct to say...

Question 19

Explain why inflation degrades the information content of prices.

Accepted Answer

The answer of Explain why inflation degrades the information content...

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

Exam 15: Central Banks in the World Today