Ch 15 Econ 490

In 2009, the average daily volume on the Federal Reserve's Fedwire system was:

$2.5 trillion

At a growth rate of 6% an economy will double in size in:

12 years

In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast inflation rates for the next decade in the United States were:

2%

In the U.S., real growth usually averages around:

3% per year

Most central banks of industrialized countries have monetary policy formed by:

A committee made up of members of their central bank

Which of the following is the best analogy? Inflation is like:

A minute having fewer seconds

Keeping interest rates stable is:

A secondary goal for central banks

Today, most central banks announce their policy actions:

Almost immediately

In the United Kingdom accountability and transparency for its central bank is achieved by setting:

An explicit numerical target for inflation

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

The means for assuring accountability and transparency:

Are different across the central banks of most countries

Which of the following statements is most accurate?

As the inflation rate increases, inflation becomes less stable

The stability of the financial system is enhanced by the ability of central banks to:

Be a lender of last resort

Most economists agree that a well-designed central bank would:

Be independent of political pressure

Setting an explicit numerical inflation target is most associated with the goal(s) of:

Both transparency and accountability

The central bank has the ability to print money; this means it:

Can impact the rate of inflation

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 interest rate decisions made by the Federal Open Market Committee:

Cannot be overridden by anyone outside of the Federal Reserve

Which of the following statements is most accurate?

Central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced

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

Central bankers to make their priorities clear

The 1990s saw inflation fall and real growth increase in the U.S. and in many other countries. This is partially attributed to all of the following except:

Central banks focused more on exchange rates in a global environment

Compared to an independent central bank, elected officials are likely to:

Choose monetary policies that are overly accommodative

In the United States, monetary policy is formed by

Committee

To be independent, a central bank must have:

Control of its own budget

Central banks are in a position to control risk in the economy because they:

Control short-term interest rates

Empirical research seems to verify that:

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

The ability to control inflation expectations is most closely related to a central bank's:

Credibility

In the United States, the Federal Reserve is asked to

Deliver price stability as one of a number of objectives

Which of the following would give the most importance to the goal of exchange rate stability?

Emerging market countries where exports and imports are central to the structure of the economy

Exchange-rate stability is likely to be a more important goal for the central banks of:

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

Interest rate volatility is a problem because:

Expenditure in the economy tends to vary inversely with the interest rate

The rationale for the existence of central banks is mainly that:

Financial markets are prone to periods of extreme volatility

The problem for a central bank setting a zero inflation policy would be:

Firms would have to cut nominal wages to reduce labor cost

The central bank for the European Union tries to achieve accountability and transparency through a:

General statement saying it must pursue price stability

The specific goals of central banks include each of the following, except:

High levels of exports

The specific goals of central banks include all of the following except:

High stock prices

The consequences of an economy operating below its potential level include:

Higher unemployment and a lower standard of living in the future

One reason given for more central bankers releasing its decisions publicly is:

If monetary policy is going to be stabilizing, speculation about central bankers decisions should be minimized

Since the Federal Reserve was created, it has:

Improved its skill at providing financial market stability

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

General agreement among economists finds that they believe monetary policy is more effective when it is formed:

Independently of political pressure

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

Inflation creates risk

The correlation between high rates of inflation and economic growth is:

Inverse; high inflation usually means low economic growth

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

All of the following are true about central bank independence except that it:

Is usually guaranteed by a country's constitution

One monopoly that modern central banks have is in

Issuing currency

One reason for having a monetary policy framework is:

It makes clear what specific goals the central bankers are pursuing

Fiscal policymakers may actually welcome some inflation for all of the following reasons except:

It weakens the independence of the central bank

The idea that central banks should be independent of political pressure is an idea that:

Its relatively new

In terms of economic growth, the central bank would like to:

Keep the economy close to its potential or sustainable rate of growth

One thing that is true about economic policy in the U.S. is:

Monetary and fiscal policy often times conflict

The operational components required for truly independent central banks include:

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

Which of the following statements is most true concerning economic policy in the U.S.?

Monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions

If prices are not stable:

Money becomes less useful as a store of value

Higher than expected inflation will increase the

Nominal amounts people need to save for retirement

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

Not zero for fears of deflation

The Federal Reserve's policy regarding announcing its policy decisions has:

Only recently gone to immediate announcement; until 1994 these policy decisions were secret

Which of the following statements is not true?

Periods of growth below the potential level are periods of low unemployment

To say monetary policy is transparent implies:

Policymakers offer plausible explanations for their decisions along with supporting data

Central bank accountability means:

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

The primary objective of most central banks in industrialized economies is:

Price stability

Many governments give their central bank control over issuing currency because:

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

The autonomy of modern central banks means that governments cannot increase their spending by:

Printing money

Which of the following statements are true?

Printing money can be a profitable venture for a government

In its role as the bankers' bank, a central bank performs each of the following, except:

Providing deposit insurance

Beginning in June of 2004 and for the next eleven months, the Federal Reserve:

Raised the target interest rate seventeen times

The goals of central banks are to:

Reduce systematic risk

History has shown us central banks:

Sometimes can make a financial crisis worse

Federal Reserve monetary policy during 2004 showed that:

Sometimes monetary policy goals can conflict

Which of the following statements regarding growth was brought out from the material in Chapter 15?

Stability results in higher output growth rates

All of the following are consequences of an economy operating above its potential level except:

Stable prices

One argument for an independent central bank is:

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

The efficient allocation of resources requires:

That prices reflect the relative value of goods and services

Stable inflation implies:

That the rate of inflation year after year is low

In the United States, one problem with central bank independence is:

The United States is a democracy and having an independent central bank is inconsistent with a representative democracy

The ability to print money means the central bank can control:

The availability of money and credit in a country's economy

The monetary policy framework is:

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

In the U.S. the right to issue currency is held by:

The federal reserve

Monetary policy in the United States is under the control of:

The federal reserve

The central bank in the US is

The federal reserve

Successful monetary policy relies most on:

The institutional environment

Potential output depends on all of the following except:

The number of firms in the economy

The focus of central banks in terms of financial market stability is:

The value at risk

One problem for the Federal Reserve regarding setting policy stems from the fact that:

There are multiple goals that may be inconsistent with each other

Central banks often find:

There are tradeoffs that make pursuing all of their goals simultaneously impossible

Which is a function of modern central banks?

To control the availability of money and credit

One use of a monetary policy framework is to clarify all of the following except:

Why zero inflation is not desirable

During the financial crisis of 2007-2009 the US Federal Reserve used its powers in all but which of the following ways:

lowered bank reserve requirements

The number of central banks that exist in the world today is:

over 170