The Quantity of securities held by the Federal Reserve is controlled through:a. The US Treasuryb. The Fed's annual budgetc. Open market operationsd. The purchases made by the regional Reserve banks
c. Open market operations
Reserves are:a. Assets of the central bank and liabilities of the commercial bankb. Assets of the commercial bank and liabilities of the central bankc. Liabilities of the commercial and central banksd. Assets and liabilities for the central bank
b. Assets of the commercial bank and liabilities of the central bank
One trait a central bank has over other businesses including banks is that it:a. Receives all of its funding from the gov'tb. Can control the size of its balance sheetc. Doesn't have stockholdersd. Doesn't have a board of directors
b. Can control the size of its balance sheet
When a business purchases a $50,000 computer system by writing a check, the business's balance sheet will:a. Only show an increase in liabilities of $50,000b. Show an increase in assets & liabilities for $50,000c. Not reflect any increase in assets or liabilities, only a change in the composition of assetsd. Only show an increase in assets of $50,000
c. Not reflect any increase in assets or liabilities, only a change in the composition of assets
A central bank's purchase of securities made by writing checks on itself will:a. Decrease the size of its balance sheetb. Have no impact at all on the balance sheetc. Increase the size of their balance sheetd. Only change the composition of it's assets
c. Increase the size of their balance sheet
A central bank's sale of securities from it's portfolio will:a. Decrease the size of it's balance sheetb. Have no impact at all on the balance sheetc. Only change the composition of it's liabilitiesd. Only change the composition of it's assets
a. Decrease the size of it's balance sheet
Considering a central bank's balance sheet, when the value of a liability decreases:a. Nothing happens to it's balance sheetb. Either the value of another liability increases or an asset must decrease.c. The value of another liability must increased. An asset must decrease
b. Either the value of another liability increases or an asset must decrease.
Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. What is the impact on the monetary base of Harry's deposit?a. The monetary base did not changeb. The monetary base increased by $1000c. The monetary base decreased by $1000d. The monetary base increases by more than a $1000
a. The monetary base did not change
If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:a. Decreaseb. Increasec. Not changed. Decrease since failing banks lost theirs
b. Increase
During the Great Depression, the monetary base in the US:a. Decreased significantlyb. Increasedc. Remained constantd. Was highly erratic
b. Increased
The fact that there is a market for federal funds enables banks to:a. Make fewer loans than thery would otherwiseb. Borrow more from the Fedc. Hold a lower level of excess reserves than they would otherwise hold.d. Hold less in required reserves
c. Hold a lower level of excess reserves than they would otherwise hold.
One outcome that would result if the Fed paid interest on reserves would be:a. Banks would hold less excess reservesb. The federal gov'ts deficit would be larger (or surplus smaller)c. Banks would no longer hold excess reservesd. The target federal funds rate would have to be fixed at a constant rate
b. The federal gov'ts deficit would be larger (or surplus smaller)
If the market federal funds rate were below the target rate, the response from the Fed would likely be to:a. Raise the required reserve rateb. Purchase US Treasury securitiesc. Sell US Treasury securitiesd. Raise the discount rate
c. Sell US Treasury securities
If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:a. Increase the supply of reservesb. Decrease the supply of reservesc. Do nothing; the Fed will let the market workd. Alter the demand for reserves
b. Decrease the supply of reserves
Variables that can influence the Fed's forecast for reserves each day include forecasting the:a. Day's demand for mortgage loansb. Level of float in the banking system, but not the balance in the US Treasury's accountc. Balance of the US Treasurys account, but not the floatd. Level of float in the banking system and the balance of the US Treasury's account
d. Level of float in the banking system and the balance of the US Treasury's account
On a particular day, the actual federal funds rate can deviate from the target federal funds rate. This might be due to all of the following except:a. Unexpected changes in the demand for reservesb. The forecasts of the Fed's staff were in errorc. There may have been more float in the banking system than anticipatedd. Daily changes in the target rate.
d. Daily changes in the target rate.
The Fed is reluctant to change the required reserve rate because:a. Changes in the rate have a small impact on the actual quantity of moneyb. The money multiplier is not impacted by the required reserve rate.c. The time lat between changing the required reserve rate and changes in the money supply can be too long.d. Small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits.
d. Small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits.
The reserve requirement does not meet all of the criteria of a good monetary policy tool, because it:a. Is not controllableb. Is not observablec. Cannot be quickly changedd. The impact of changing it is unpredictable
c. Cannot be quickly changed
Which of the following statements is most true regarding monetary policy tools?a. The required reserve rate is the most easily observable toolb. The central banks cannot set a quantity and a price tool simultaneouslyc. The federal funds rate is not the best tool because it fails the controllable test of a good monetary policy toold. The Fed currently uses a quantity tool for monetary policy
b. The central banks cannot set a quantity and a price tool simultaneously
Inflation targeting does all of the following except:a. Increase policymaker's credibilityb. Increase policymaker's accountabilityc. Communicate policymaker's objectives clearly and openlyd. Hinder economic growth
d. Hinder economic growth
Which of the following statements is most correct?a. A central bank can select between a fixed exchange rate and an independent inflation policy provided fiscal policy cooperatesb. A central bank cannot have both a fixed exchange rate and an independent inflation policyc. The central banks of most industrialized countries focus on fixed exchanged ratesd. While most central banks of industrialized countries favor fixing exchange rates, their primary concern is on domestic inflation
b. A central bank cannot have both a fixed exchange rate and an independent inflation policy
If the bonds of two different countries are identical, their expected return will:a. Be equal if capital flows freely internationallyb. Always be equalc. Be equal only if the exchange rate between the two countries is fixedd. Be equal only if the inflation rate is the same in each country
a. Be equal if capital flows freely internationally
A country that frequently uses capital controls:a. Increases the risk for foreign investorsb. Decreases the risk for foreign investorsc. Should see lower interest rates on its domestic bonds and lower pricesd. Will attract more investment
a. Increases the risk for foreign investors
If interest rates in the US increase relative to interest rates in Europe:a. The demand for dollars on the foreign exchange market would increaseb. The supply of Euros on the foreign exchange market would increasec. The price of US assets should increased. All of the answers given are correct
d. All of the answers given are correct
Any central bank policy that influences the domestic interest rate will:a. Have no affect on the exchange rate if exchagne rates are flexibleb. Have an affect on the exchange ratec. Not impact the supply of and demand for the domestic currency if exchange rates are flexibled. Have to fix exchange rates
b. Have an affect on the exchange rate
A sterilized foreign exchange intervention would:a. Alter the asset side of a central banks balance sheet but leave the domestic monetary base unchangedb. Alter the liability side of the central banks balance sheet but leave the asset side unchangedc. Leave the central banks balance sheet unchangedd. Not alter the central banks holdings of international reserves
a. Alter the asset side of a central banks balance sheet but leave the domestic monetary base unchanged`
If the Fed were to purchase Euros for dollars and at the same time sell US treasury securities in the open market, this would be an example of:a. An unsterilized foreign exchange interventionb. The Fed not changing their balance sheet at allc. A sterilized foreign exchange interventiond. The Fed altering the domestic monetary base
c. A sterilized foreign exchange intervention
A foreign exchange intervention that alters the domestic monetary base is:a. Sterilizedb. Unsterilizedc. Not likely to change domestic interest ratesd. Impossible
b. Unsterilized
A speculative attack on a country with a fixed exchange rate occurs when:a. Financial market participants believe the gov't will have to devalue its currencyb. Financial market participants believe the gov't will have to see off some of their international reservesc. Financial market participants believe the currency is undervaluedd. The country is running out of gold reserves
a. Financial market participants believe the gov't will have to devalue its currency
Under the Bretton Woods System each participating country had to:a. Be willing to exchange their own currency for goldb. Hold ample reserves of currency of each of the participating countriesc. Stand ready to exchange its own currency for US dollars at a fixed exchange rated. Adopt capital controls
c. Stand ready to exchange its own currency for US dollars at a fixed exchange rate
According to the equation of exchange, if real output and the money supply stay the same and the price level increases:a. The velocity of money has to increaseb. The velocity of money has to decreasec. The real GDP had to rised. Nominal GDP remains constant
a. The velocity of money has to increase
If we look at the equation for money demand from Irving Fisher, which of the following statements is true?a. Velocity does not play any role in the equationb. Money demand is not a factor of nominal incomec. The price level does not impact money demandd. There isn't an explicit role for the interest rate in the equation
d. There isn't an explicit role for the interest rate in the equation
The empirical data reveals the velocity of M2 to be:a. Relativity stable in the long runb. Highly volatile in the long runc. Stable only when measured annuallyd. Higher than the velocity of M1
b. Highly volatile in the long run
The higher the nominal interest rate:a. The less money individuals will hold for any given level of transactions and the higher the velocity of moneyb. The more money individuals will hold for any given level of transactions and the higher the velocity of moneyc. The more money individuals will hold for any given level of transactions and the lower the velocity of moneyd. The less money individuals will hild for any given level of transactions and the lower the velocity of money
a. The less money individuals will hold for any given level of transactions and the higher the velocity of money
The high inflation countries, inflation rates can exceed the rate of growth of money because:a. High inflation increases the velocity of moneyb. High rates of inflation increase the opportunity cost of holding moneyc. Money loses value quickly with inflationd. All of the answers given are correct
d. All of the answers given are correct
Aggregate supply is the quantity of:a. Real output supplied at each level of inflationb. Nominal output supplied at each level of inflationc. Real output supplied at each level of real interest rated. Output the country wants at each level of inflation
a. Real output supplied at each level of inflation
Which if the following is not a part of aggregate expenditure?a. Consumptionb. The nominal interest ratec. Government purchasesd. Net exports
b. The nominal interest rate
If the economy's current level of output is below its potential level of output, the short-run aggregate supply curve:a. Will shift rightb. Will shift leftc. Will be verticald. Does not matter; only the long-run aggregate supply curve matters in this situation
a. Will shift right
The self-correcting mechanish to return the economy to potential output from output gaps is the change in:a. Potential outputb. Aggregate demandc. Short-run aggregate supplyd. The real interest rate by the central bank
c. Short-run aggregate supply
If the economy was initially at a long-run equilibrium, the short-run effects from a decrease in aggregate demand will include:a. A recessionary gapb. A decrease in potential outputc. An increase in the current inflation rated. A decrease in the target rate of inflation
a. A recessionary gap
Which of the following statements is incorrect?a. A fall in the central banks target inflation rate shifts the monetary policy reaction curve to the leftb. A decrease in the central banks inflation target raises the real interest rate policymakers set at each level of outputc. Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same directiond. A fall in the central banks target inflation rate causes the monetary policy reaction curve to flatten
d. A fall in the central banks target inflation rate causes the monetary policy reaction curve to flatten
The 2008 and 2009 tax cuts and the increase in government spending that occured at the same time did not have the same inflationary impact as the similar policy in the 1960s because:a. The fiscal stimulus came at a time when the economy was weakening due to other factorsb. Monetary policy makers, having perceived the inflation risk, responded appropriatelyc. The timing was fortuitousd. All of the answers provided are correct
d. All of the answers provided are correct
An increase in the price of oil should:a. Shift the dynamic aggregate demand curve to the rightb. Reduce the level of potential outputc. Shift the short-run aggregate supply curve upwardd. Create a temporary expansionary gap
c. Shift the short-run aggregate supply curve upward
Comparing monetary and fiscal policy:a. Fiscal policy has an advantage because it is faster to implement than monetary policyb. Fiscal policy is easier to implementc. Monetary policy is easier to implementd. History has shown fiscal policy to be more effective at stabilization
c. Monetary policy is easier to implement
If a positive inflation shock occurs and monetary policymakers do not change the inflation target:a. Output will return to potential output and inflation will equal the inflation targetb. Output will rise above potential output while inflation will equal the inflation targetc. Output will fall below potential output while inflation will equal the inflation targetd. Output will return to potential output but inflation will exceed the inflation target
a. Output will return to potential output and inflation will equal the inflation target
Most economists attribute the Great Moderation experienced in the US during the 1990s mainly to:a. Good Fortuneb. Improved Technologyc. Aggressive fiscal policyd. Better understanding and use of monetary policy
d. Better understanding and use of monetary policy
Disinflation occurs when:a. The inflation rate is negativeb. The inflation rate is 2 percent or lessc. The inflation rate goes above ten percentd. The rate of inflation declines
d. The rate of inflation declines
Which of the following statements best describes the level of potential output in the US?a. It never changes year to yearb. It is very erratic year to yearc. It usually increases year to yeard. It has been decreasing since 1999
c. It usually increases year to year
If monetary policymakers respond aggressively to current inflation above the target inflation rate, the:a. Monetary policy reaction curve would be flatb. Dynamic aggregate demand curve would have to steep slopec. Monetary policy reaction curve would have a positive and steep sloped. Dynamic aggregate demand curve would shift rightward
c. Monetary policy reaction curve would have a positive and steep slope
Monetary policymakers face a tradeoff between:a. The level of output and the rate of inflationb. The volatility in output and the volatility in inflationc. Low unemployment and high inflationd. High unemployement and low inflation
b. The volatility in output and the volatility in inflation