320-ch.15

In the U.S., real growth usually averages around: A) 3 percent per year. B) 1 percent per year. C) 5 percent per year. D) 7 percent per year.

A) 3 percent per year.

The means for assuring accountability and transparency: A) Are different across the central banks of most countries. B) Are the same for all successful central banks. C) Involve setting specific numerical targets so there is no confusion as to what the goal is. D) b and c

A) Are different across the central banks of most countries.

Which of the following statements is most accurate? A) As the inflation rate increases, inflation becomes less stable. B) As the inflation rate decreases inflation becomes less stable. C) As the inflation rate decreases inflation becomes more volatile. D) As the inflation rate increases, inflation becomes more stable.

A) As the inflation rate increases, inflation becomes less stable.

The stability of the financial system is enhanced by the ability of central banks to: A) Be a lender of last resort. B) Provide loans to insolvent banks. C) Provide deposit insurance. D) Convert poorly run banks into branches of the central bank.

A) Be a lender of last resort.

Exchange rate stability is likely to be a more important goal for the central banks of: A) Emerging market economies than the central bank of the U.S. B) The U.S. and Japan than most small developing countries. C) Countries where exports and imports make up a small total of all economic activity. D) b and c

A) Emerging market economies than the central bank of the U.S.

Interest rate volatility is a problem because: A) Expenditure in the economy tends to vary inversely with the interest rate. B) It decreases risk. C) It can impact productivity in a positive way. D) Financial decisions become less difficult. E) All of the above.

A) Expenditure in the economy tends to vary inversely with the interest rate.

Which of the following statements regarding growth was brought out from the material in Chapter 15? A) High rates of growth are less volatile than low rates of growth. B) Low rates of growth are less volatile than high rates of growth. 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.

A) High rates of growth are less volatile than low rates of growth.

One reason for having a monetary policy framework is: A) It makes clear what specific goals the central bankers are pursuing. B) It provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets. C) It provides central bankers the secrecy needed to perform their jobs effectively. D) It can make goal setting vague enough so that the central bankers can always claim success.

A) It makes clear what specific goals the central bankers are pursuing.

Central Bank accountability means: A) Politicians will establish set goals and central bankers will report on their progress. B) Central bankers are not accountable to any elected officials. C) Central bankers are only accountable to the banks in their respective countries. D) None of the above.

A) Politicians will establish set goals and central bankers will report on their progress.

The efficient allocation of resources requires: A) Prices reflect the relative value of goods and services. B) Inflation not to exceed three percent a year. C) Deflation. D) None of the above.

A) Prices reflect the relative value of goods and services.

Fiscal policymakers may actually welcome some inflation because: 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) Interest payments tend to be fixed so the real interest payments are reduced. D) All of the above.

D) All of the above.

Higher than expected inflation will: A) Decrease the real interest rate borrowers pay on fixed rate mortgages. B) Increase the nominal amounts people need to save for retirement. C) Decrease the real interest rate savers earn on fixed rate CD's. D) All of the above.

D) All of the above.

One use of a monetary policy framework is to clarify: A) The likely response when policy goals are in conflict with one another. B) The goal that is currently receiving the most attention. C) How goals will be measured. D) All of the above.

D) All of the above.

The 1990's saw inflation fall and real growth increase in the U.S. 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. D) All of the above.

D) All of the above.

The central bank has the ability to print money; this means: A) They can control the availability of money and credit in the economy. B) They can make loans when other institutions cannot. C) They can impact the rate of inflation. D) All of the above.

D) All of the above.

Whenever central bankers face more than one goal, policy framework requires: 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.

D) Central bankers to make their priorities clear.

The rationale for the existence of central banks is mainly: A) Financial systems are inherently stable. B) The supervision of banks. C) Financial intermediation cannot occur with out a central bank. D) Financial markets are prone to periods of extreme volatility.

D) Financial markets are prone to periods of extreme volatility.

One reason given for more central bankers releasing their decisions publicly is: A) For monetary policy to work, people must be taken by surprise. B) Most people do not understand monetary policy so it really doesn't do any harm to release the decisions publicly. C) So that central banks across the world can coordinate their policies. D) If monetary policy is going to be stabilizing speculation about central bankers decisions should be minimized.

D) If monetary policy is going to be stabilizing speculation about central bankers decisions should be minimized.

One of the results of an independent central bank for fiscal policymakers is: A) To finance government spending the Treasury has to order more currency from the central bank. B) Fiscal policymakers always have to borrow to increase spending. C) Fiscal policymakers cannot borrow unless the Federal Reserve prints more money. D) Increased government spending has to be financed with either higher taxes or increased government borrowing.

D) Increased government spending has to be financed with either higher taxes or increased government borrowing.

The main problem from inflation as seen by most economists is: 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.

D) Inflation creates risk.

General agreement among economists finds that they believe monetary policy is more effective when it is formed: A) By an individual rather than a committee. B) In secrecy without the reasoning behind it being revealed for many years. C) To keep financial markets guessing. D) None of the above.

D) None of the above.

In the United States, the Federal Reserve is asked: A) To deliver on a specific inflation target set by Congress. B) To meet an explicit target for economic growth. C) To meet a specific target for unemployment each year. D) None of the above.

D) None of the above.

One of the consequences of an economy operating below its potential level is: A) High rates of inflation. B) High interest rates. C) Low unemployment. D) None of the above.

D) None of the above.

The correlation between high rates of inflation and economic growth is: A) Direct; one brings about the other. B) Inverse; high inflation usually means low economic growth. C) There is nor correlation between these measures. D) None of the above.

D) None of the above.

In the United Kingdom accountability and transparency for its central banks is achieved by: A) Setting a numerical target for unemployment each year. B) Setting a numerical target for economic growth. C) Setting numerical targets for economic growth and the exchange rate. D) Setting an explicit numerical target for inflation.

D) Setting an explicit numerical target for inflation.

Which of the following statements are true? A) Printing money can be a profitable venture for a government. B) Printing money, while necessary, is a losing venture for a government. C) Too much money printed usually leads to higher prices. D) a and c E) b and c

D) a and c

Which of the following statements is most true concerning economic policy in the U.S.? A) Monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long run inflationary ramifications of their actions. B) Fiscal policymakers tend to focus on inflation and unemployment while monetary policymakers focus most of their attention on the money supply and the exchange rate. C) Fiscal policymakers tend to focus more on pleasing their constituents while monetary policymakers may be willing to upset voters today if it means a better long run. D) a and c E) b and c

D) a and c

One of the consequences of an economy operating below its potential level is: A) Higher unemployment. B) High rates of inflation. C) A lower standard of living in the future. D) a and b E) a and c

E) a and c

Successful monetary policy relies on: A) Competent people in responsible positions. B) Luck. C) The institutional environment. D) Knowledgeable citizens who know how to react to the policy. E) a and c

E) a and c

The problem for a central bank setting a zero inflation policy would be: A) The risk of deflation. B) It is impossible to have zero inflation. C) Firms would have to cut nominal wages to reduce labor cost. D) Economic growth would also have to be zero. E) a and c

E) a and c

Central bank independence: 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 by the actions of fiscal policymakers. E) a b and d

E) a b and d

Compared to an independent central bank, elected officials are likely to: A) Favor long run stability over short term prosperity. B) Favor short-term prosperity over long run stability. C) Choose monetary policies that are overly accommodative. D) a and c E) b and c

E) b and c

Many governments give their central bank control over issuing currency because: a. Printing currency can be profitable for a government so government officials may have a strong incentive to print too much. b. Having large amounts of currency can lead to lower rates of inflation. c. Central banks use the profits from issuing currency to finance their operations. d. The only way to distribute currency to banks is through the central bank.

a. Printing currency can be profitable for a government so government officials may have a strong incentive to print too much.

One argument for an independent central bank is: A) Successful monetary policy requires a long time horizon usually well beyond the next election of most public officials. B) Without independence competent people would not take a position in a central bank. C) The central bank usually hires more competent individuals than the Treasury department or other finance ministries. D) Central bankers have a short run focus that usually corrects problems faster.

A) Successful monetary policy requires a long time horizon usually well beyond the next election of most public officials.

In the U.S. the right to issue currency is held by: A) The Federal Reserve. B) The U.S. Treasury C) The Office of the Comptroller of the Currency. D) The U.S. Mint.

A) The Federal Reserve.

One problem for the Federal Reserve regarding setting policy stems from the fact that: A) There are multiple goals but only one instrument with which to work. B) There are more policy instruments than goals. C) Congress sets very tight goal ranges that the central bankers must hit. D) a and c

A) There are multiple goals but only one instrument with which to work.

Today, most central banks announce their policy actions: A) One year after the policy is put in place. B) Almost immediately. C) Within a 3 to 5 year "window". D) Usually six months after the policy is put in place.

B) Almost immediately.

The Federal Reserve's Fedwire system is used mainly to provide: A) A means for foreign banks to transfer funds to U.S. banks. B) An inexpensive and reliable way for financial institutions to transfer funds to one another. C) An inexpensive way for individuals to pay their bills on-line. D) A means for the Treasury to collect tax payments.

B) An inexpensive and reliable way for financial institutions to transfer funds to one another.

If a government were to find that they cannot raise taxes any further, and that they cannot borrow any further from financial markets, the government: A) Cannot increase their spending any further. B) Can increase spending by having the central banks purchase their bonds. C) Is in default. D) None of the above.

B) Can increase spending by having the central banks purchase their bonds.

In the United States, monetary policy is formed by: A) An individual advised by a close group of people. B) Committee. C) The president and approved by Congress. D) The chairperson of the Federal Reserve and can only be overturned by the presidents of the Regional Federal Reserve Banks.

B) Committee.

Empirical research seems to verify that: A) Countries that have less independent central banks experience lower rates of inflation. B) Countries that have high rates of inflation seem to have central banks with low levels of independence. C) There is no relationship between the independence of central banks and rates of inflation. D) The rate of inflation seems to vary directly with the amount of central bank independence.

B) Countries that have high rates of inflation seem to have central banks with low levels of independence.

Beginning in January of 2001 and for the next eleven months, the Federal Reserve: A) Raised the interest rate eleven times. B) Lowered the interest rate eleven times. C) Lowered the interest rate six times. D) Kept the interest rate constant.

B) Lowered the interest rate eleven times.

One thing that is true about economic policy in the U.S. is: A) Fiscal and monetary policy never conflict. B) Monetary and Fiscal policy often times conflict. C) Monetary policy ultimately controls fiscal policy since the Fed controls the money supply. D) Fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

B) Monetary and Fiscal policy often times conflict.

The Federal Reserve's policy regarding announcing its policy decisions has: A) Always been to announce it immediately, that was part of the original Federal Reserve Act of 1913. B) Only recently gone to immediate announcement, until 1994 these policy decisions were secret. C) Since their early failure at preventing the Great Depression, been to release the decisions immediately. D) None of the above, the Fed does not release their decisions publicly.

B) Only recently gone to immediate announcement, until 1994 these policy decisions were secret.

Which of the following statements is not true? A) Periods of growth above the potential level are usually periods of low unemployment. B) Periods of growth below the potential level are periods of low unemployment. C) Periods of growth above the potential level are periods of low employment. D) Periods of growth below the potential level are periods of high unemployment.

B) Periods of growth below the potential level are periods of low unemployment.

The goals of central banks are to: A) Reduce the idiosyncratic risk that impacts specific investments. B) Reduce systematic risk. C) Keep stock and bond prices high. D) a and c E) b and c

B) Reduce systematic risk.

The central bank in the United States is: A) Bank of America B) The Federal Reserve. C) The U.S. Treasury. D) The Bank of The United States.

B) The Federal Reserve.

In the United States, one problem with central bank independence is: A) It is almost impossible to obtain because Congress controls the budget of the Federal Reserve. B) The United States is a democracy and having an independent central bank is inconsistent with a democracy. C) Central bank independence has not produced favorable results. D) Central banks can control policy, but the U.S. Treasury issues currency.

B) The United States is a democracy and having an independent central bank is inconsistent with a democracy.

The focus of central banks in terms of financial market stability is: A) The standard deviation of market risk. B) The value at risk. C) The growth rate of the economy, not financial disaster. D) Idiosyncratic risk.

B) The value at risk.

In 2003, the average daily volume on the Federal Reserve's Fedwire system was: A) $ 3 billion. B) $300 billion C) $ 3 trillion D) $300 million. E) None of the above.

C) $ 3 trillion

Which of the following is the best analogy? Inflation is like: A) A pound having more ounces. B) A day having more hours. C) A minute having fewer seconds. D) A mile having more feet.

C) A minute having fewer seconds.

Keeping interest rates stable is: A) The most important goal for a central bank. B) The focus of the central bank, stable interest rates will have all other goals achieved. C) A secondary goal for central banks. D) Not a goal of the central bank.

C) A secondary goal for central banks.

The number of central banks that exist in the world today is: A) Less than 10. B) Over 250. C) Around 170. D) Over 50 but less than 100.

C) Around 170.

Central banks do not perform each of the following, EXCEPT: A) Control securities markets. B) Control the government's budget. C) Controls the availability of money and credit. D) Manages fiscal policy.

C) Controls the availability of money and credit.

The central bank for the European Union tries to achieve accountability and transparency through a: A) Specific inflation target. B) Specific target for unemployment and economic growth. C) General statement saying it must pursue price stability. D) Specific target for the dollar euro exchange rate.

C) General statement saying it must pursue price stability.

Since the Federal Reserve was created, they have: A) Averted all financial panics that could have plagued the U.S. economy. B) Averted a few financial panics but not most. C) Improved their skill at providing financial market stability. D) Proved to be much better at preventing international panics than domestic ones.

C) Improved their skill at providing financial market stability.

In terms of economic growth, the central bank would like to: A) Have the maximum growth rate possible. B) Keep the growth rate averaging zero. C) Keep the economy close to their potential or sustainable rate of growth. D) Balance every recession with a boom.

C) Keep the economy close to their potential or sustainable rate of growth.

The operational components required for truly independent central banks include: A) Budget controlled by Congress. B) The ability to have policies reversed. C) Monetary policies cannot be reversed by anyone outside of the central bank. D) The chairperson of the bank answerable only to the president. E) c and d

C) Monetary policies cannot be reversed by anyone outside of the central bank

Most economists agree that the target rate of inflation for the central banks should be: 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.

C) Not zero for fears of deflation.

To say monetary policy is transparent implies: A) That anyone could figure out what the correct policy should be. B) Monetary policy should not be so difficult that most people couldn't understand it. C) Policymakers offer plausible explanations for their decisions along with supporting data. D) That when faced with the same problem, policymakers will always react the same way.

C) Policymakers offer plausible explanations for their decisions along with supporting data.

The primary objective of the central bank is: A) High securities prices. B) Low unemployment. C) Price stability. D) A strong domestic currency.

C) Price stability.

History has shown us central banks: A) Have always prevented financial crisis. B) Seldom minimize financial crisis. C) Sometimes can make a financial crisis worse. D) Are independent from most financial crisis.

C) Sometimes can make a financial crisis worse.

Federal Reserve monetary policy during 2001 showed: A) That monetary policy is always stable. B) That monetary policy goals are consistent. C) That sometimes monetary policy goals can conflict. D) The Federal Reserve will always favor stable interest rates over economic growth.

C) That sometimes monetary policy goals can conflict.

Stable inflation implies. A) That the rate of inflation averaged over many years is zero(0). B) That inflation is predictable. C) That the rate of inflation year after year is low. D) Low rates of unemployment.

C) That the rate of inflation year after year is low.

Monetary policy in the United States is under the control of: A) The U. S. Treasury. B) The President. C) The Federal Reserve. D) The U.S. Senate.

C) The Federal Reserve.

Everything else equal, if the growth rate of a country exceeds its sustainable rate: A) The central bank will keep interest rates low to keep the momentum. B) The central banks will now identify this new rate as the sustainable rate and try to maintain it. C) The central bank is likely to raise interest rates to slow the rate of growth. D) The central bank is likely to lower the interest rate thinking a slowdown is coming to offset this boom.

C) The central bank is likely to raise interest rates to slow the rate of growth.

The monetary policy framework is: A) The Law that created the Federal Reserve System. B) The idea that central banks should be interconnected across countries. C) The concept that central bankers should be independent, accountable, and good communicators. D) A growing belief that there should be one central bank headquartered at the World Bank.

C) The concept that central bankers should be independent, accountable, and good communicators.

Central banks are in a position to control risk in the economy because: A) They control the unemployment rate. B) They control the economy's real growth rate. C) They control short term interest rates. D) All of the above.

C) They control short term interest rates.