Number of central banks that exist in the world today
over 180
Modern central banks have a monopoly in
issuing currency
In the U.S. the authority to issue currency is held by
the Federal Reserve
Monetary policy in the US is under the control of
Federal Reserve
The ability to create money means the central bank can control
the availability of money and credit in a country's economy
T/F: Printing currency can be a profitable venture for a government
True
Many governments give their central bank control over issuing currency because
printing currency can be profitable for a government so government officials may have strong incentive to print too much
In its role as a bankers' bank a central bank performs each of the following
1. providing loans during times of financial distress
2. overseeing commercial banks and the financial system
3. managing the payments system
The central bank has the ability to create money, this means that it:
can impact the rate of inflation
The stability of the financial system is enhanced by the ability of central banks to
be a lender of last resort
In 2015, the average daily volume on the Fed's Fedwire system was
3.3 trillion
The Federal Reserve's Fedwire system is used mainly to provide
an inexpensive and reliable way for financial institutions to transfer funds to one another
Which is a function of modern central banks?
control the availability of money and credit
The rationale for the existence of central banks is mainly that
financial systems are prone to periods of extreme volatility
Specific goals of central banks include all of the following:
1. low and stable inflation
2. high and stable real growth
3. a stable exchange rate
4. low and stable unemployment
5. reduce systematic risk
A primary goal of central banks is to
reduce systematic risk
central banks often find
there are tradeoffs that make pursuing all of their goals simultaneously impossible
Primary objective of most central banks in industrialized economies is
price stability
If prices are not stable
money becomes less useful as a store of value
Which of the following is the best analogy? Inflation is like:
a minute having fewer seconds
the efficient allocation of resources requires:
that prices reflect the relative value of goods and services
which of the following statements is most accurate?
as the inflation rate increases, inflation becomes less stable
stable inflation implies
that inflation is predictible
the correlation between high rates of inflation and economic growth is
inverse; high inflation usually means low economic growth
most economists agree that the target rate of inflation for the central banks should be
above zero for fears of deflation
The problem for a central bank setting a zero inflation policy would be
firms would have to cut the nominal wage to reduce the real wage
higher than expected inflation will increase the
nominal amounts people need to save for retirement
main problem from inflation as seen by most economists is
inflation creates risk
in terms of economic growth, the central bank would like to
keep the economy close to its potential or sustainable rate of growth
potential output depends on all of the following except
the number of firms in the economy
over very long periods, the US real economic growth averaged around
3% per year
everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank
is likely to raise interest rates to slow the rate of growth
T/F: periods of growth above the potential level are periods of low unemployment
False
all of the following are consequences of an economy operating above its potential level except:
a) high rates of inflation
b) high interest rates
c) low unemployment
d) stable prices
d) stable prices
Which of the following statements regarding growth was brought out from the material in chapter 15?
a) stability results in higher output growth rates
b) inflation volatility results in higher output growth rates
c) there is no correlation between the vol
a) stability results in higher output growth rates
at a growth rate of 6% an economy will double in size in
12 years
since the Fed was created it has
improved its skill at securing financial stability
keeping interest rates stable is
a secondary goal for central banks
interest rate volatility is a problem because
it adds to uncertainty, thereby diminishing the investment
central banks are in a position to control risk in the economy because they
control short term interest rates
exchange rate stability is likely to be a more important goal for the central banks of
emerging market economies that the central bank of the US
which of the following would give the most importance to the goal of exchange rate stability?
a) large, closed economies
b) US, Japan, and other developed countries
c) emerging market countries where exports and imports are central to the structure of the
c) emerging market countries where exports and imports are central to the structure of the economy
the 1990s saw inflation fall and real growth increase in the US and in many other countries. this is partially attributed to:
a) technological innovation
b) redesign of many central banks
c) central banks became better at their jobs
successful monetary policy relies most on
the institutional environment
most economists agree that a well-designed central bank would
be independent of political pressure
there is a strong consensus among economists that monetary policy is more effective when it is formed
independently of political pressure
the idea that central banks should be independent of political pressure is an idea that
is relatively new
to be independent a central bank must have
control of its own budget
the operational components required for truly independent central banks include
monetary policies that cannot be reversed by anyone outside of the central bank
the interest rate decisions made by the FOMC
cannot be overridden by anyone outside of the Fed
one argument of an independent central bank is
successful monetary policy requires a long time horizon usually well beyond the next election of most public officials
compared to an independent central bank, elected officials are likely to
choose monetary policies that are overly accommodative
empirical research seems to verify that
countries that have high rates of inflation seem to have central banks with low levels of independence
in the US monetary policy is formed by
committee
most central banks of industrialized countries have monetary policy formed by
a committee made up of members of their central bank
in the US one problem with central bank independence is
in a representative democracy, monetary policymakers must be held accountable to the public
central bank accountability means
politicians will establish goals and central bankers will report on their progress
during the financial crisis of 2007-2009 the Fed used its powers in all but which of the following ways
a) lending to nonbanks
b) accepting very illiquid collateral against loans
c) lowered bank reserve requirements
d) lowered its policy rate to zero
c) lowered bank reserve requirements
in a survey of forecasts towards the end of the financial crisis of 2007-2009 forecast inflation rates for the next decade in the US were
2%
to say monetary policy is transparent implies
policymakers offer plausible explanations for their decisions along with supporting data
the means for assuring accountability and transparency
may differ across the central banks of different countries
in the UK accountability and transparency for its central bank is achieved by setting
an explicit numerical target for inflation
the central bank for the euro area tries to achieve accountability and transparency through
a standard numerical objective for inflation over the medium term
setting an explicit numerical inflation target is most associated with the goals of
both transparency and accountability
in the US the Fed is asked to
deliver price stability as one of a number of objectives
today most central banks announce their policy actions
almost immediately
the Fed's policy regarding announcing its policy decisions has
only recently gone to immediate announcement; until 1994 these policy decisions were secret
one reason given for more central bankers releasing its decisions publicly is
monetary policy is more effective when households can understand and anticipate it
T/F: central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced
True
the monetary policy framework is
a way to prioritize and implement the central bank's objectives when they are in conflict
one reason for having monetary policy framework is
it makes clear what specific goals the central bankers are pursuing
one use of a monetary policy framework is to clarify all of the following except
a) the likely response when policy goals are in conflict with one another
b) how goals will be measured
c) the goal that is currently receiving the most attention
d) why zero
d) why zero inflation is not desirable
one problem for the fed regarding setting policy stems from the fact that
there are multiple goals that may be inconsistent with each other
whenever central bankers face more than one goal, the policy framework requires
central bankers to make their priorities clear
the ability to control inflation expectations is most closely related to a central bank's
credibility
one thing that is true about economic policy in the US is
monetary and fiscal policy need not, but may conflict
which of the following statements is the most true concerning economic policy in the US?
monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions
for fiscal policymakers, one of the results of an independent central bank is
increased government spending has to be financed with either higher taxes or increased government borrowing
fiscal policymakers may actually welcome some inflation for all of the following reasons except:
a) it potentially raises tax revenues
b) it reduces the real value of the national debt allowing governments to "default" on a portion of their debt
c) intere
d) weakens the independence of the central banks
if a government were to find that it cannot raise taxes any further, and that it cannot borrow any further from financial markets, the government
can increase spending by having the central banks purchase its bonds
the autonomy of modern central banks mean that governments cannot increase their spending by
printing money
all of the following are true about central bank independence except that it
a)is usually given at the pleasure of governments
b) can be eliminated by governments in a time of crisis
c) is usually guaranteed by a country's constitution
d) can be subverted
c) is usually guaranteed by a country's constitution
Number of central banks that exist in the world today
over 180
Modern central banks have a monopoly in
issuing currency
In the U.S. the authority to issue currency is held by
the Federal Reserve
Monetary policy in the US is under the control of
Federal Reserve
The ability to create money means the central bank can control
the availability of money and credit in a country's economy
T/F: Printing currency can be a profitable venture for a government
True
Many governments give their central bank control over issuing currency because
printing currency can be profitable for a government so government officials may have strong incentive to print too much
In its role as a bankers' bank a central bank performs each of the following
1. providing loans during times of financial distress
2. overseeing commercial banks and the financial system
3. managing the payments system
The central bank has the ability to create money, this means that it:
can impact the rate of inflation
The stability of the financial system is enhanced by the ability of central banks to
be a lender of last resort
In 2015, the average daily volume on the Fed's Fedwire system was
3.3 trillion
The Federal Reserve's Fedwire system is used mainly to provide
an inexpensive and reliable way for financial institutions to transfer funds to one another
Which is a function of modern central banks?
control the availability of money and credit
The rationale for the existence of central banks is mainly that
financial systems are prone to periods of extreme volatility
Specific goals of central banks include all of the following:
1. low and stable inflation
2. high and stable real growth
3. a stable exchange rate
4. low and stable unemployment
5. reduce systematic risk
A primary goal of central banks is to
reduce systematic risk
central banks often find
there are tradeoffs that make pursuing all of their goals simultaneously impossible
Primary objective of most central banks in industrialized economies is
price stability
If prices are not stable
money becomes less useful as a store of value
Which of the following is the best analogy? Inflation is like:
a minute having fewer seconds
the efficient allocation of resources requires:
that prices reflect the relative value of goods and services
which of the following statements is most accurate?
as the inflation rate increases, inflation becomes less stable
stable inflation implies
that inflation is predictible
the correlation between high rates of inflation and economic growth is
inverse; high inflation usually means low economic growth
most economists agree that the target rate of inflation for the central banks should be
above zero for fears of deflation
The problem for a central bank setting a zero inflation policy would be
firms would have to cut the nominal wage to reduce the real wage
higher than expected inflation will increase the
nominal amounts people need to save for retirement
main problem from inflation as seen by most economists is
inflation creates risk
in terms of economic growth, the central bank would like to
keep the economy close to its potential or sustainable rate of growth
potential output depends on all of the following except
the number of firms in the economy
over very long periods, the US real economic growth averaged around
3% per year
everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank
is likely to raise interest rates to slow the rate of growth
T/F: periods of growth above the potential level are periods of low unemployment
False
all of the following are consequences of an economy operating above its potential level except:
a) high rates of inflation
b) high interest rates
c) low unemployment
d) stable prices
d) stable prices
Which of the following statements regarding growth was brought out from the material in chapter 15?
a) stability results in higher output growth rates
b) inflation volatility results in higher output growth rates
c) there is no correlation between the vol
a) stability results in higher output growth rates
at a growth rate of 6% an economy will double in size in
12 years
since the Fed was created it has
improved its skill at securing financial stability
keeping interest rates stable is
a secondary goal for central banks
interest rate volatility is a problem because
it adds to uncertainty, thereby diminishing the investment
central banks are in a position to control risk in the economy because they
control short term interest rates
exchange rate stability is likely to be a more important goal for the central banks of
emerging market economies that the central bank of the US
which of the following would give the most importance to the goal of exchange rate stability?
a) large, closed economies
b) US, Japan, and other developed countries
c) emerging market countries where exports and imports are central to the structure of the
c) emerging market countries where exports and imports are central to the structure of the economy
the 1990s saw inflation fall and real growth increase in the US and in many other countries. this is partially attributed to:
a) technological innovation
b) redesign of many central banks
c) central banks became better at their jobs
successful monetary policy relies most on
the institutional environment
most economists agree that a well-designed central bank would
be independent of political pressure
there is a strong consensus among economists that monetary policy is more effective when it is formed
independently of political pressure
the idea that central banks should be independent of political pressure is an idea that
is relatively new
to be independent a central bank must have
control of its own budget
the operational components required for truly independent central banks include
monetary policies that cannot be reversed by anyone outside of the central bank
the interest rate decisions made by the FOMC
cannot be overridden by anyone outside of the Fed
one argument of an independent central bank is
successful monetary policy requires a long time horizon usually well beyond the next election of most public officials
compared to an independent central bank, elected officials are likely to
choose monetary policies that are overly accommodative
empirical research seems to verify that
countries that have high rates of inflation seem to have central banks with low levels of independence
in the US monetary policy is formed by
committee
most central banks of industrialized countries have monetary policy formed by
a committee made up of members of their central bank
in the US one problem with central bank independence is
in a representative democracy, monetary policymakers must be held accountable to the public
central bank accountability means
politicians will establish goals and central bankers will report on their progress
during the financial crisis of 2007-2009 the Fed used its powers in all but which of the following ways
a) lending to nonbanks
b) accepting very illiquid collateral against loans
c) lowered bank reserve requirements
d) lowered its policy rate to zero
c) lowered bank reserve requirements
in a survey of forecasts towards the end of the financial crisis of 2007-2009 forecast inflation rates for the next decade in the US were
2%
to say monetary policy is transparent implies
policymakers offer plausible explanations for their decisions along with supporting data
the means for assuring accountability and transparency
may differ across the central banks of different countries
in the UK accountability and transparency for its central bank is achieved by setting
an explicit numerical target for inflation
the central bank for the euro area tries to achieve accountability and transparency through
a standard numerical objective for inflation over the medium term
setting an explicit numerical inflation target is most associated with the goals of
both transparency and accountability
in the US the Fed is asked to
deliver price stability as one of a number of objectives
today most central banks announce their policy actions
almost immediately
the Fed's policy regarding announcing its policy decisions has
only recently gone to immediate announcement; until 1994 these policy decisions were secret
one reason given for more central bankers releasing its decisions publicly is
monetary policy is more effective when households can understand and anticipate it
T/F: central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced
True
the monetary policy framework is
a way to prioritize and implement the central bank's objectives when they are in conflict
one reason for having monetary policy framework is
it makes clear what specific goals the central bankers are pursuing
one use of a monetary policy framework is to clarify all of the following except
a) the likely response when policy goals are in conflict with one another
b) how goals will be measured
c) the goal that is currently receiving the most attention
d) why zero
d) why zero inflation is not desirable
one problem for the fed regarding setting policy stems from the fact that
there are multiple goals that may be inconsistent with each other
whenever central bankers face more than one goal, the policy framework requires
central bankers to make their priorities clear
the ability to control inflation expectations is most closely related to a central bank's
credibility
one thing that is true about economic policy in the US is
monetary and fiscal policy need not, but may conflict
which of the following statements is the most true concerning economic policy in the US?
monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions
for fiscal policymakers, one of the results of an independent central bank is
increased government spending has to be financed with either higher taxes or increased government borrowing
fiscal policymakers may actually welcome some inflation for all of the following reasons except:
a) it potentially raises tax revenues
b) it reduces the real value of the national debt allowing governments to "default" on a portion of their debt
c) intere
d) weakens the independence of the central banks
if a government were to find that it cannot raise taxes any further, and that it cannot borrow any further from financial markets, the government
can increase spending by having the central banks purchase its bonds
the autonomy of modern central banks mean that governments cannot increase their spending by
printing money
all of the following are true about central bank independence except that it
a)is usually given at the pleasure of governments
b) can be eliminated by governments in a time of crisis
c) is usually guaranteed by a country's constitution
d) can be subverted
c) is usually guaranteed by a country's constitution