Question 1

What advantages does monetary policy have over fiscal policy?

Accepted Answer

Monetary policy is more flexible and les...

Question 2

The Federal Reserve has the power to issue money,but does not influence interest rates.

Accepted Answer

A) True 
 B)False

Question 3

Why is it important that the central bank be independent,or insulated from changes in political power?

Accepted Answer

If the central bank is independent,polit...

Question 4

If the economy has been experiencing high inflation,as it was in the late 1970s,sharply reducing that inflation rate through monetary policy (as Paul Volcker did) is likely to

Accepted Answer

A)   increase short-run economic growth, triggering an economic expansion.
B)   produce a recession in the short run.
C)   increase demand for expensive items like cars and houses.
D)   reduce the unemployment rate in the short run.E) All of the above
F) B) and C)

Question 5

One of the advantages of monetary policy over fiscal policy is that

Accepted Answer

A)   monetary policy must be approved by Congress, which prevents bad monetary policy from taking effect.
B)   monetary policy does not produce inflation, whereas fiscal policy does.
C)   the Fed can react more quickly than the legislature can.
D)   monetary policy allows the Fed to limit government spending so that government budget deficits are reduced.E) B) and C)
F) A) and D)

Question 6

When Fed Chairman Paul Volcker raised interest rates shortly after he became chairman in 1979,the effect was

Accepted Answer

A)   a pair of severe recessions in 1980 and 1981-1982.
B)   a rapid increase in the inflation rate.
C)   a decade of economic decline for the United States.
D)   an immediate and sharp decline in the value of the dollar.E) A) and B)
F) A) and C)

Question 7

Which one of the following is among the Federal Reserve's tools to control short-term interest rates?

Accepted Answer

A)   Open market operations.
B)   Raising or lowering taxes on financial institutions.
C)   Limits on credit card interest rates.
D)   Controlling the demand for money.E) All of the above
F) None of the above

Question 8

The discount rate is generally set __________ the fed funds rate.

Accepted Answer

A)   1/4 to 1/2 percentage point lower than
B)   equal to
C)   3/4 to 1 percentage point higher than
D)   1 to 2 percentage points higher thanE) C) and D)
F) B) and C)

Question 9

If the Federal Reserve raises the federal funds rate,which one of the following will tend to happen as a result?

Accepted Answer

A)   The inflation rate will increase.
B)   The demand curve for goods and services bought with a credit card will shift to the left.
C)   The demand curve for cars will shift to the right.
D)   Home mortgage rates will decline.E) All of the above
F) A) and D)

Question 10

Inflation targeting is a policy in which the Fed

Accepted Answer

A)   announces an inflation target and then runs monetary policy to hit that target.
B)   tries to reduce inflation by setting a low federal funds rate target.
C)   tries to reduce inflation by setting a high federal funds rate target.
D)   uses open market operations as a method of discretionary intervention, increasing the money supply when there is a recession, and decreasing it when there is an unsustainable economic expansion.E) A) and D)
F) A) and C)

Question 11

When Paul Volcker became Federal Reserve chairman in 1979,

Accepted Answer

A)   the rate of inflation was relatively low, and he managed to raise it to 12 percent.
B)   the rate of inflation was 12 percent, and he managed to reduce it, but doing so caused a recession.
C)   the rate of inflation was already low and stable, but his policies made it lower and more stable.
D)   the rate of inflation was 12 percent, and he was not able to bring it down during his time as chairman.E) C) and D)
F) A) and B)

Question 12

Which of the following is one of the main goals of monetary policy?

Accepted Answer

A)   Rescuing bankrupt private businesses.
B)   Transferring wealth from lenders to borrowers.
C)   Producing deflation (falling prices) .
D)   Smoothing out the business cycle.E) A) and C)
F) A) and B)

Question 13

Cutting the fed funds rate

Accepted Answer

A)   puts downward pressure on inflation.
B)   puts upward pressure on prices.
C)   can cause interest rates to increase.
D)   can cause deflation to occur.E) C) and D)
F) B) and D)

Question 14

To produce financial stability,the Federal Reserve would want to

Accepted Answer

A)   increase the money supply during an economic boom and reduce the money supply during a recession.
B)   raise the interest rate during a recession to prevent excessive borrowing and increase income for struggling banks.
C)   sell bonds during a recession and buy bonds during an economic boom.
D)   raise the money supply and cut interest rates during a recession to stimulate spending.E) B) and D)
F) B) and C)

Question 15

If the inflation rate is rising,which one of the following would the Fed need to do to reduce the inflation rate?

Accepted Answer

A)   Lower margin requirements.
B)   Lower reserve requirements.
C)   Encourage more discount borrowing.
D)   Increase the federal funds rate.E) A) and D)
F) B) and D)

Question 16

The Federal Reserve's most-used policy tool is open market operations,which control short-term interest rates.

Accepted Answer

A) True 
 B)False

Question 17

The Fed's response to the housing crisis of 2007 and 2008 was to

Accepted Answer

A)   encourage discount window borrowing.
B)   reduce taxes on financial institutions.
C)   raise the federal funds rate.
D)   raise the reserve requirement.E) B) and C)
F) A) and D)

Question 18

What is the role of the "discount window" in preventing financial crises? How was it used during the financial crisis of 2007-2009?

Accepted Answer

By standing ready to lend struggling fin...

Question 19

If the Federal Reserve reduces the federal funds rate,

Accepted Answer

A)   The quantity of funds borrowed and lent will decrease.
B)   Other interest rates, such as home mortgage rates, will rise to compensate.
C)   Inflation is more likely to appear.
D)   Long-term interest rates will react more than short-term rates.E) B) and C)
F) A) and B)

Question 20

Which of the following is NOT one of the main goals of monetary policy?

Accepted Answer

A)   Controlling inflation.
B)   Smoothing out the business cycle.
C)   Ensuring financial stability.
D)   Balancing the federal budget.E) All of the above
F) A) and D)

Exam 12: Monetary Policy

Which of the following is one of the main goals of monetary policy?

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To produce financial stability,the Federal Reserve would want to

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If the Federal Reserve reduces the federal funds rate,

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Inflation targeting is a policy in which the Fed

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When Paul Volcker became Federal Reserve chairman in 1979,

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If the Federal Reserve raises the federal funds rate,which one of the following will tend to happen as a result?

Correct AnswerverifiedShow Answer

The Federal Reserve's most-used policy tool is open market operations,which control short-term interest rates.

Correct AnswerverifiedShow Answer

If the inflation rate is rising,which one of the following would the Fed need to do to reduce the inflation rate?

Correct AnswerverifiedShow Answer

What advantages does monetary policy have over fiscal policy?

Correct AnswerverifiedMonetary policy is more flexible and les...View AnswerShow Answer

One of the advantages of monetary policy over fiscal policy is that

Correct AnswerverifiedShow Answer

Why is it important that the central bank be independent,or insulated from changes in political power?

Correct AnswerverifiedIf the central bank is independent,polit...View AnswerShow Answer

Which of the following is NOT one of the main goals of monetary policy?

Correct AnswerverifiedShow Answer

The Fed's response to the housing crisis of 2007 and 2008 was to

Correct AnswerverifiedShow Answer

Cutting the fed funds rate

Correct AnswerverifiedShow Answer

Which one of the following is among the Federal Reserve's tools to control short-term interest rates?

Correct AnswerverifiedShow Answer

If the economy has been experiencing high inflation,as it was in the late 1970s,sharply reducing that inflation rate through monetary policy (as Paul Volcker did) is likely to

Correct AnswerverifiedShow Answer

When Fed Chairman Paul Volcker raised interest rates shortly after he became chairman in 1979,the effect was

Correct AnswerverifiedShow Answer

The discount rate is generally set __________ the fed funds rate.

Correct AnswerverifiedShow Answer

What is the role of the "discount window" in preventing financial crises? How was it used during the financial crisis of 2007-2009?

Correct AnswerverifiedBy standing ready to lend struggling fin...View AnswerShow Answer

The Federal Reserve has the power to issue money,but does not influence interest rates.

Correct AnswerverifiedShow Answer

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Monetary policy is more flexible and les...
View Answer

Correct Answer
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Correct Answer
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If the central bank is independent,polit...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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By standing ready to lend struggling fin...
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Correct Answer
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