Final exam

Inflow; financial crisis

A capital ... can promote financial instability in an emerging-market country because it can lead to a lending boom and excessive risk-taking on the part of banks, triggering ..

Purchase; sale

A central bank ... of domestic currency and corresponding ... of foreign assets inthe foreign exchange market leads to an equal decline in its international reservesand the monetary base

macroprudential regulation

According to Alan Greenspan, ... is a more appropriate tool to address the asset price bubble than the monetary policy

if inflation rises by 1 percentage point above its target, then the Fed should raisethe real federal funds rate by one-half a percentage point.

According to the Taylor rule.

if real GDP rises by 2 percent above potential GDP, the Fed should raise the realfederal funds rate by 1 percentage point

According to the taylor rule

sell government securities, raise reserve requirements, raise the discount rate,and increase the interest paid on reserves held at the Fed banks.

Contractionary monetary policies to increase the Fed funds rate include

Appreciate; long

Higher tariffs and quotas cause a country's currency to ... in the ... run, everything else held constant

Lower

If a central bank does not want to see its currency fall in value, it could ... the domestic interest rate, thereby strengthening its currency.

increases; remains unchanged

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.

increase the interest paid on excess reserves held at the Fed.

If the Fed wants to discourage commercial banks lending, it will

It will be easier to obtain loans at commercial banks

If the Federal Reserve System buys government securities from commercial banks and the public,

nominal income doubles

If the velocity of money is constant in the short run, then when the money supply doubles

Dollars; marks

In response to the overvalued dollar in the early 1970s, the German Bundesbank bought... and sold ... to keep the exchange rate fixed, gaining international reserves.

Be a lender of last resort in the 1907 bank panic

Initially, the Federal reserve system was created to....

incentivizes financial institutions to hold more reserves and reduce risky lending

Interest paid on excess reserves held at the Fed

Depreciate

Once the central bank sells domestic currency by purchasing foreign assets, the domestic currency will eventually ...

the purchase or sale of government securities, as well as collateralized money loans, by the Fed

Open Market Operations refer to

Theory of purchasing power parity

The ... states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries

IMF; reserve-currency country

The Bretton Woods system created the ... Under this system, the US wasdesignated as the ..

The Fed funds rate needs to be brought up by more than 1% when the inflationgap increases by 1%

The Taylor principle states that

The replacement cost of capital is low relative to the market value of firms, raisingthe q value, boosting investment

The Tobin's q theory of monetary policy says that if interest rate is low, ..

decrease; increase

The credit channel of monetary policy suggests that low interest rates increases the firms' net worth, which ... the degrees of adverse selection and moral hazard that in turn ... lending and investment

rate at which the federal reserve banks lend to commercial banks

The discount rate is the interest

Swap Lines

The federal reserve lends dollars to foreign central banks in exchange for foreign currencies. This lending facility is called

Rise; go up

The forward guidance of monetary policy suggests that if the Fed commits to future monetary easing (cutting interest rate), the expected inflation rate will ...,and the investment will ..

The discount rate, the reserves ratio, interest on excess reserves, and open-market operations

The four main tools of Monetary policy are

Federal Reserve Bank of New York

The president of which federal Reserve always serves on the FOMC committee

a restrictive monetary policy can force a contraction of the money supply, but anexpansionary monetary policy may not achieve an increase in the money supply.

The problem of cyclical asymmetry refers to the idea that

the money supply to increase

The purchase of government securities from the public by the fed will cause

The law of one price

The starting point for understanding how exchange rates are determined is asimple idea called ..., which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter whichcountry produces it.

depreciate

The theory of PPP suggests that if one country's price level rises relative toanother's, its currency should

Some goods are not traded between countries

The theory of purchasing power parity cannot fully explain exchange rate movements because

The average number of times that a dollar is spent in buying the total amount of final goods and services

The velocity of money is

Depreciating

Under a fixed exchange rate regime, if a country's central bank runs out ofinternational reserves, it cannot keep its currency from ..

Domestic; foreign

Under a fixed exchange rate regime, if the domestic currency is initially undervalued, the central bank must intervene to sell the ... currency by purchasing ... assets

low

Velocity of money is ... during the pandemic both because of low nominal income(GDP) and high money supply

Created a currency board

When a domestic currency is completely backed by a foreign currency and the note-issuing authority establishes a fixed exchange rate to this foreign currency, then the country is said to have ..

repo

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

European Central Bank

Which central bank is technically the most independent in the world?

Feder Open Market Committee

Which group aids the Board of Governors of the Federal reserve system in conducting monetary policy?

reverse repos

Which of the following Fed actions will decrease the money supply?

increasing, reducing

. A current account surplus indicates that America is ... its claims on foreignwealth, while a deficit indicates that this country is ... its claims on foreign wealth

transaction demand

. According to Fisher, the velocity of money is determined by

Outflows; inflows

. Capital ... are American purchases of foreign assets, and capital ... are foreign purchases of American assets

Decrease; depreciate

Suppose the Fed releases a statement which leads people to believe that the Fedwill be enacting expansionary monetary policy (cut interest rate) in the nearfuture. Everything else held constant, the demand for US assets will ... and theUS dollar will ...

fall during economic contractions

Velocity tends to

An increase in currency holdings B. An increase in reserves requirement C. Less borrowing from the Fed. D. All of the above.

A contraction in money supply is generated by

nationally chartered banks

All ________ are required to be members of the Fed.

Increase; appreciate

An increase in the domestic interest rate causes the demand for domestic assetsto ... and the domestic currency to ..., everything else held constant.

one full nonrenewable fourteen-year term plus part of another term

Each governor on the Board of Governors can serve

decrease; decrease

Everything else held constant, an increase in the required-reserve ratio on checkable deposits causes the M1 money multiplier to _____ and the money supply to _____

Increase; depreciate

Everything else held constant, if a central bank makes an unsterilized purchase offoreign assets, then the domestic money supply will ... and the domesticcurrency will ...

Swiss chocolate will become more expensive in the United States.

If the dollar depreciates relative to the Swiss franc,

fall by 2%

If the inflation rate in Canada is 4%, and the inflation rate in Mexico is 2%, thenthe theory of purchasing power parity predicts that the value of the Canadiandollar in terms of Mexican pesos will

Cut the Fed funds rate by 2%

If the job report indicates an unemployment rate is 2% higher than the NAIRUlevel, all else equal, the Taylor rule suggests that the Federal Reserve should

6

If the money supply is $500 and nominal income is $3,000, the velocity of money is

Greater than 1.0

If the real exchange rate between the US and Japan is ..., then it is cheaper tobuy goods in Japan than in the US.

loans; borrows

In a repo transaction, the Fed ____ money; in a reverse repo transaction, the Fed _____ money.

Banks borrow reserves from one another on an overnight basis

The Federal funds mark is the market in which

1913

The Federal reserve system was created in.....

Interest rates on the demand for money

The Keynesian theory of money demand emphasizes the importance of

Beige Book

The Report produced by the Federal Reserve banks to report insights from surveys with businesses in the states of the economy in each of the Federal Reserve districts is called.....

A. It can decrease long-term interest rates. B. It generates credit easing by injecting liquidity into the banking system. C. It decreases risk premium on risky assets. D. All of the above

The main purpose or advantage of quantitative easing over ordinary open-market operations includes

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

Which of the following Statements best describes the 12 Federal Reserve Banks?

open market operations are focused exclusively on the U.S. government bonds; quantitative easing also included the buying and selling of debt issues by government agencies and government-sponsored entities

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

open market operations

Which of the following tools of monetary policy is considered the most important of a day to day basis?

cuts; increase

With a rise in stock prices due to interest rates..., households then have more wealth and will ... their consumption.

1,250

With an 8% reserve requirement, a $100 increase in reserves generates ...increase in loans, according to the money multiplier

7

The Board of Governors of the Federal Reserve has ...... members.

Appreciate; hurts

The current US interest rate hikes cause dollar to ..., which ... the US exports