Money and Banking Exam 3

For which of the following would the fed raise interest rates without hesitation:

A shift in aggregate demand above potential output

The Taylor rule is:

An approximation that seeks to explain how the FOMC sets their targets

Why might controlling inflation in the short run differ than the long run?:

Because the velocity of money is constant in the long run, but not in the short run

Raising interest rates following the use of unconventional policy tools depends on:

Both the size and composition of the central bank's balance sheet

What is forward guidance?:

Communication of likely future

Forward Guidance:

Communication of likely future, key: it HAS to be credible

While GDP was once a key cyclical indicator, its usefulness has declined substantially for all of the following reasons except which one?:

Contains too much information

For which countries can changes in money velocity largely be ignored for controlling inflation via the money supply in the short run?:

Countries with high inflation

History shows that:

Countries with high rates of money growth have high rates of inflation

The key to the success of forward guidance as a monetary policy tool is:

Credibility

The primary monetary policy tool most used by central banks today is:

Interest rates

Money Market Mutual Fund:

Investors buy shares Shares always redeemable for $1 MF invests $ in short term "safe" debt (commercial paper) Pays interest to investors

Which one of the following statements is most correct?:

It is impossible to have high, sustained inflation without monetary accommodation

If velocity were constant at 2 while M2 rose from $10 trillion to $11 trillion in a single year, what would happen to nominal GDP?:

It would go up by 10%

Makes a good return better and a bad return worse:

Leverage

What is the velocity of money?:

Number of times each dollar is used

The theory that money growth translates directly into inflation is the:

Quantity theory of money

If the market federal funds rate were below the target rate, the response from the Fed would likely be to:

Raise the IOER Rate

More common cause of inflation (shift in which: AD or AS?)

Right shift in Aggregate Demand. Most of the time Aggregate Supply is shifting right, which would lower prices

Does money velocity fluctuate more in the short run, or the long run?:

Short run

Why are the zero and nominal lower bounds not the same?:

Storage costs, insurance costs, transportation costs

Quantitative Easing:

Supplies aggregate reserves beyond ELB, primarily done through target asset purchases

The zero lower bound:

The notion that nominal interest rates cannot go below zero

The effective lower bound:

The rate at which intermediaries will switch to holding cash

Which of the following topics were pivotal to the crisis, but not included in the timeline you were required to read?:

The role of the savings and loans crisis The global savings glut and flight to quality When the reserve primary fund "broke the buck" which sent money markets into chaos

One way the Fed can inject reserves into the banking system is to increase:

The size of the fed's balance sheet through purchasing securities

The trend in real GDP growth is determined by:

The structure of the economy and the rate of technological progress, which is fairly STABLE

A good monetary policy instrument is:

Tightly linked to monetary policy objectives

Goal of monetary Policy:

To stabilize the economy and minimize the peaks and bottoms

Federal Funds Loans are:

Unsecured short term loans

Key assumptions behind the quantity theory of money include that the:

Velocity of money is constant