Fin 344 Final Exam

B

Central banks often find: A. they can efficiently pursue all of their goals simultaneously. B. there are tradeoffs that make pursuing all of their goals simultaneously impossible. C. the goal(s) they pursue will be determined by their profitability. D. they must keep their goals secret or else they cannot be attained.

D

Central banks that have a hierarchical mandate with inflation targeting basically are saying: A. hitting the inflation target is the first priority after all other stated objectives are reached. B. hitting the inflation target is the only objective. C. the inflation target is the second most important goal after economic growth, which is always the most important goal for monetary policymakers. D. hitting the inflation target comes first, everything else comes second.

C

Discount lending by the Fed: A. is the key component of monetary policy. B. is more important today than in years past. C. is not as important today as it was in the past. D. amounts to five billion dollars in volume during an average week.

B

During the 1990s many countries developed a monetary policy framework that focused on inflation targeting. This is an example of policymakers: A. focusing exclusively on an intermediate target. B. bypassing intermediate targets and focusing directly on an objective. C. focusing on multiple numerical targets. D. developing a new intermediate target.

C

During the early years of the Great Depression, a study of the money aggregates reveals that the money multiplier: A. was at an all-time high. B. increased from 1929 right through 1936. C. decreased. D. was constant from 1929 through 1936

D

During the early years of the Great Depression, the monetary base and M2: A. both increased significantly. B. both decreased significantly. C. moved in opposite directions; M2 increased while the monetary base decreased. D. moved in opposite directions; the monetary base increased but M2 decreased.

C

During the financial crisis of 2007-2009 the U.S. Federal Reserve used its powers in all but which of the following ways: A. lending to nonbanks. B. accepting very illiquid collateral against its loans. C. lowered bank reserve requirements. D. lowered its policy rate to zero.

A

The reserve requirement is applied to two-week balances on: A. transactions deposits. B. savings deposits. C. both transactions deposits and savings deposits. D. savings deposits and one-week balances on transactions deposits.

C

When a business purchases a $50,000 computer system by writing a check, the business's balance sheet will: A. only show an increase in liabilities of $50,000. B. show an increase in assets and liabilities for $50,000. C. not reflect any increase in assets or liabilities, only a change in the composition of assets. D. only show an increase in assets of $50,000.

D

When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show: A. an increase in assets and a decrease in liabilities of $1 million. B. only an increase in assets of $1 million. C. only an increase in liabilities of $1 million. D. an increase in assets and liabilities of $1 million.

D

Whenever central bankers face more than one goal, the 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.

A

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

Within the European Central Bank, banks with excess reserves: A. can deposit them with the ECB and earn an interest rate below the target refinancing rate. B. earn no interest on excess reserves, similar to the system in the U.S. C. must deposit the excess with the ECB's Deposit Facility. D. none of the above answers is correct; there are no required reserves for the ECB and so therefore no excess reserves.

C

most central banks of industrialized countries have monetary policy formed by A. an individual, usually the minister of finance B. their version of Congress C. a committee made up of members of their central banks D. an individual, usually the person heading the central bank at the time

A

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

D

one monopoly that modern central banks have is in: A. regulating other banks B. making loans to banks C. issuing U.S. treasury securities D. issuing currency

A

the monetary base is the sum of A. reserves and currency in the hands of the public B. reserves and M2 C. currency in the hands of the public and M2 D. currency in the hands of the public M1

C

the primary objective of most central banks in industrialized economies is: A. high securities prices B. low unemployment C. price stability D. a strong domestic currency

C

the sample deposit expansion multiplier is really too simple for understanding the link between changes in a central banks balance sheet and the quantity of money in the economy because it: A. ignores how central banks could change their balance sheet B. assumes banks hold excess reserves C. ignores the fact people might change their currency holdings D. ignores changes in vault cash

A

when an individual withdraws funds from a checking account the: A. banks balance sheet shrinks but the size of the Fed's balance sheet is not effected B. bank's balance sheet shrinks and so does the Fed's balance sheet C. banks balance sheet shrinks but the size of the Fed's balance sheet increases D. size of the banks balance sheet stays the same but the size of the Fed's balance sheet shrinks

D

when the Fed makes a discount loan, the impact on the banking system's balance sheet is: A. an increase in liabilities with no change in assets B. an increase in assets and a decrease in liabilities C. a decrease in assets and an increase in liabilities D. the same as that of an open market purchase

D

whenever central bankers face more than one goal, the 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

C

which of the following would give the most importance to the goal of exchange rate stability A. large, closed economies B. the U.S. and Japan and other developed countries C. emerging market countries where exports and imports are central to the structure of the economy D. Europe

C

Bonds issued by a foreign government in its own currency would: A. not be held by the Fed. B. be held by the Fed as part of its securities. C. be held by the Fed as part of its foreign exchange reserves. D. be held by the Fed as part of its loans.

C

Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Banking System's balance sheet will specifically show: A. only an increase in liabilities of $2 billion. B. only a decrease in assets of $2 billion. C. no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing by $2 billion respectively. D. no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing by $2 billion respectively.

B

Federal funds loans are: A. secured loans between banks and the Fed. B. unsecured loans. C. collateralized loans between banks. D. guaranteed by the FDIC.

A

If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's reserves will: A. increase by $100,000. B. increase by less than $100,000. C. not change. D. decrease.

C

If the market federal funds rate were below the target rate, the response from the Fed would likely be to: A. raise the required reserve rate. B. purchase U.S. Treasury securities. C. sell U.S. Treasury securities. D. raise the discount rate.

A

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.

B

One trait a central bank has over other businesses including banks is that it: A. receives all of its funding from the government. B. can control the size of its balance sheet. C. doesn't have stockholders. D. doesn't have a board of directors.

A

Over the two-year period during which the financial crisis occurred, the amount of assets in the Federal Reserve balance sheet increased by: A. 2.5 times. B. 3 times. C. 4.5 times. D. 6 times.

B

The Fed will make a discount loan to a bank during a crisis: A. no matter what condition the bank is in. B. only if the bank is sound financially and can provide collateral for the loan. C. but if the bank doesn't have collateral the interest rate is higher. D. only if the bank would fail without the loan.

C

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system. The "channel" or "corridor" refers to the spread between the central bank's: A. target interest rate and its deposit rate. B. target interest rate and its lending rate. C. lending rate and its deposit rate. D. target interest rate and the current interest rate.

B

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 no correlation between these measures. D. is direct at low rates of economic growth and inverse at high rates.

C

The fact that there is a market for federal funds enables banks to: A. make fewer loans than they would otherwise. B. borrow more from the Fed. C. hold a lower level of excess reserves than they would otherwise hold. D. hold less in required reserves.

A

The fact that, for most of its history, the Fed was reluctant to make discount loans actually: A. at times was a destabilizing force for financial markets. B. proved to be a very stabilizing force for financial markets. C. pushed the discount rate above the target federal funds rate. D. resulted in banks in very strong financial shape as being the only ones borrowing from the Fed

C

The formula for required reserves is: A. (1/rD) D. B. 1/rD. C. rD. D. D/rD.

D

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.

A

The measure for the actual rate of inflation used in the Taylor rule is the: A. Personal Consumption Expenditure Index. B. GDP deflator. C. Consumer Price Index. D. Producer Price Index.

C

The operational components required for truly independent central banks include: A. a budget controlled by Congress. B. the ability to have policies reversed. C. monetary policies that cannot be reversed by anyone outside of the central bank. D. the chairperson of the bank being answerable only to the President.

A

The tools of monetary policy available to the Fed include each of the following, except the: A. currency-to-deposit ratio. B. discount rate. C. target federal funds rate. D. reserve requirement.

A

The ways the Fed can inject reserves into the banking system include: A. an increase in the size of the Fed's balance sheet through purchasing securities. B. increasing the discount rate. C. making loans to non-bank corporations. D. an increase in the size of the Fed's balance sheet through selling securities.

D

To minimize the cost of holding reserves for small banks, the: A. required reserve rate decreases as the amount of deposits increases. B. required reserve rate is constant. C. required reserve rate is not applied for transaction deposits less than $100 million. D. first few million of transactions deposits are exempt from reserve requirements.

D

an open market sale of U.S. treasury securities by the Fed will cause the banking system's balance sheet to show A. only an increase in liabilities B. only a decrease in assets C. no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing D. not net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing

A

assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits and the public withdrawls ten percent of every deposit in cash. An open market purchase of $1 million by the Fed will see banking system deposits increase by: A. more than $1 million but less than $10 million B. exactly $1 million C. less than $1 million D. more than $10 million but less than $20 million

B

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 A. cannot increase its spending any further B. can increase spending by having the central banks purchase its bonds C. is in default D. can decrease the amount of money in circulation

B

in its role as the bankers' bank, a central bank performs each of the following except A. providing loans during times of financial distress B. providing deposit insurance C. overseeing commercial banks and the financial system D. managing the payments system

A

interest rate volatility is a problem because: A. it adds to uncertainty, thereby diminishing the investment B. it decreases risk C. it can impact productivity in a positive way D. financial decisions become less difficult when interest rates are moe volatile