Chapter 15

In the U.S. the Fed can make loans to banks when no one else can. This is called acting as ____ and the central bank can do this because it can ____. a. A government-sponsored enterprise; raise or lower taxes b. A lender of last resort; create money c. A lender of last resort; raise or lower taxes d. A government-sponsored enterprise; create money

A lender of last resort; create money

Monetary Policy Framework

A structure in which central bankers clearly state their goals and the tradeoffs among them.

The monetary policy framework is: a. The law that created the Federal Reserve System b. A growing belief that there should be one central bank headquartered at the World Bank c. The idea that central banks should be interconnected across countries d. A way to prioritize and implement the central bank's objectives when they are in conflict.

A way to prioritize and implement the central bank's objectives when they are in conflict.

Today most monetary policy decisions a. Are made by committee b. Involve raising or lowering government spending. c. Involve raising or lowering taxes d. Are made by an individual

Are made by committee

Which of the following statements is most accurate? a. As the inflation rate decreases inflation becomes more volatile. b. As the inflation rate decreases inflation becomes less stable c. As the inflation rate increases, inflation becomes less stable. d. As the inflation rate increase, inflation becomes more stable.

As the inflation rate increases, inflation becomes less stable.

Which of the following is not one of the most important day-to-day activities of a central bank today? a. Managing the payments system b. Acting as a lender of last resort c. Buying and selling foreign currency d. Overseeing commercial banks and the financial system

Buying and selling foreign currency

If people lose faith in financial institutions, savers will ____ lending and economic investors will ____ borrowing. a. Increase; decrease b. Decrease; increase c. Decrease; decrease d. Increase; increase

Decrease; decrease

Central banks aim for stability throughout the nation in several areas. Which of the following is not one of those areas? a. Prices b. Human Capital c. Real output growth d. Exchange Rates

Human Captial

The text states that the main job of the central bank is to a. Keep troubled banks open b. Lower prices c. Improve economic welfare by managing risk. d. Issue bank charters for all banks

Improve economic welfare by managing risk

Since the Federal Reserve was created, it has: a. Averted all financial panics that could have plagued the U.S. economy. b. Improved its skill at securing financial stability c. Proved to be much better at preventing international panics than domestic ones d. Averted a few financial panics but not most.

Improved its skill at securing financial stability.

In the United States, one problem with central bank independence is: a. In a representative democracy, monetary policymakers must be held accountable to the public. b. It is almost impossible to obtain because Congress controls the budget of the Federal Reserve. c. The central bank can control policy, but the U.S. Treasury issues currency. d. Central bank independence has not produced favorable results.

In a representative democracy, monetary policymakers must be held accountable to the public

The monetary policy framework does not include ____. a. Independence b. Good communication c. Irreversibility d. Accountability

Irreversibility

One monopoly that modern central banks have is in: a. Regulating other banks. b. Making loans to banks. c. Issuing currency d. Issuing U.S. Treasury securities

Issuing currency

Fiscal policymakers may actually welcome some inflation for all of the following reasons except: 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. It weakens the independence of the central bank

It weakens the independence of the central bank

A central bank's credibility is particularly important when it comes to the goal of ____ because ____. a. Stable financial markests; everyone either buys or sells in them b. Quickly-growing financial markets; many economic decisions are based on expectations about future prices c. High inflation; many economic decisions are based on expectations about future prices. d. Low inflation; many economic decisions are based on expectations about future prices

Low inflation; many economic decisions are based on expectations about future prices.

In the United States and other nations from 1990 to 2007, inflation was generally ____, and economic growth was generally ____. a. Low; high b. High; high c. Low; low d. High; low

Low; high

One way excessive and unpredictable inflation can distort resource allocation in the short run is by a. Decreasing the overall price level b. Causing too little production c. Making producers think increases in prices mean that demand for their output has increased. d. Causing too much desire to lend and too little desire to borrow because lenders benefit from inflation, while borrowers suffer from it.

Making producers think increase in prices mean that demand for their output has increased.

One thing that is true about economic policy in the U.S. is: a. Monetary and fiscal policy need not, but may conflict b. Monetary policy ultimately controls fiscal policy since the Fed controls the money supply. c. fiscal and monetary policy never conflict d. fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

Monetary and fiscal policy need not but may conflict.

One reason given for more central bankers releasing its decisions publicly is: a. Most people do not understand policy so it really doesn't do any harm to release the decisions publicly b. So that the central banks across the world can coordinate their policies c. Monetary policy is more effective when households and businesses can understand and anticipate it. d. For monetary policy to work, people must be taken by surprise.

Monetary policy is more effective when households and businesses can understand and anticipate it.

As a bank for the government, the central bank can create _____; today it generally does this by ____. a. Investment; granting loans to firms. b. Output; encouraging technological progress c. Consumption; printing paper money d. Money; adjusting interesting rates

Money; adjusting interest rates.

By the end of the 1990s, a. Only the EU's central bank was independent b. Nearly every bank worldwide was independent c. Only the central bank of the United States was independent. d. Only Asian central banks,

Nearly every central bank worldwide was independent.

The number of central banks that exist in the world today is: a. About 250 b. Less than 10 c. Over 180 d. Over 50 but less than 100

Over 180

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

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

Sustainable growth refers to growth in a. Potential output from growth inputs b. Prices from an increase in aggregate demand c. Population in an economy with enough resources to support it. d. The money supply from responsive fiscal policy.

Potential output from growth inputs.

The major tradeoff faced daily by the central bank is a. Independence versus effectiveness b. Employment versus output c. Exchange rate stability d. Price stability vs. growth.

Price stability versus growth.

Which of the following statements is true? a. In the modern economy the amount of money created has no effect on prices b. Printing too much money usually leads to lower prices c. Printing currency can be a profitable venture for a government. d. Printing currency, while necessary, is a losing venture for a government

Printing currency can be a profitable venture for a government.

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

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

The text discusses occasions where nations at war counterfeited their opponents' currency to illustrated the importance of ____ in a healthy economy. a. Tax revenues b. Stable prices c. High interest rates d. Hyperinflation

Stable prices

The possibility of a sever disruption in financial markets is an example of ____ risk, so we use ____ to analyze it. a. Idiosyncratic; value at risk b. Systematic; value at risk c. Systematic; standard deviation d. Idiosyncratic; standard deviation

Systematic; value at risk

In the U.S. the authority to issue currency is held by: a. The U.S. Mint b. The Federeal Reserve c. The U.S. Treasury d. The Office of the Comptroller of the Currency

The Federal Reserve

Monetary policy in the United States is under the control of: a. The U.S. Treasury b. The U.S. Senate c. The Federal Reserve d. The President

The Federal Reserve

The ability to create money means the central bank can control: a. The unemployment rate b. Government expenditures c. The availability of money and credit in a country's economy d. Tax revenue.

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

Uncontrolled inflation is usually seen as the fault of a. Fiscal policy b. Congress c. Financial markets d. The central bank

The central bank

Which of the following is true regarding the central bank? a. It engages in fiscal policy b. The central bank can control money and credit because it can print currency. c. There are hundreds of central banks in the U.S. d. Most central banks enact monetary policy by intervening in the stock market.

The central bank can control money and credit because it can print currency.

Which of the following is true about central banks and elected politicians in the U.S.? a. In general, true to their word, politicians make no attemp to influence the central bank. b. The crisis of 2007-2009 made Americans more supportive of an independent central bank. c. The Federal Reserve System is likely to want to decrease interest rates when it perceives inflation is too high. d. The central bank tends to prefere long time horizon, some politicians may tend to focus more on the short term.

The central bank tends to prefer a long time horizon, whereas some politicians may tend to focus more on the short term.

The initial concept of a central bank was that of a bank for a. The government b. foreign banks c. Monetary policy d. Investment banks

The government

Which of the following is not at least in part, under the central bank's control? a. Interest rates b. Output levels c. The government budget d. Financial market stability

The government budget

Credibility

The idea that everyone trusts central bankers to do what they say they are going to do.

Potential output depends on all of the following except: a. The size of the capital stock b. The number of firms in the economy c. the number of people who can work d. Technology

The number of firms in the economy.

Consider a politician who is excessively focused on the short-term and is therefore experiencing major conflicts with the central bank. Which of the following would least likely be true about the situation. a. The central bank would want to increase the quantity of money circulating b. The politician would want to encourage the central bank to buy government bonds from banks. c. The politician would want to encourage the central bank to adopt a low inflation target. d. The politician would want to reduce the budget deficit.

The politician would want to encourage the central bank to adopt a low inflation target.

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

The rate of inflation seems to vary directly with the amount of central bank independence.

Ultimately monetary and fiscal policy have a. The same ultimate goal but sometimes conflict b. Different ultimate goals but do not conflict c. Different ultimate goals and sometimes conflict d. The same ultimate goal and so do not conflict.

The same ultimate goal but sometimes conflict.

Which of the following is true about hyperinflation? a. Hyperinflation is generally quite predictable b. When Hyperinflation occurs, money no longer acts as a reliable store of value c. Hyperinflation is generally defined as an increase in prices of more than 50% per year d. Hyperinflation is very common in the U.S.

When hyperinflation occurs, money no longer acts as a reliable store of value.

Most economists agree that a well-designed central bank would: a. Be run by one key policy maker b. Be independent of political pressure. c. Be accountable only to other banks. d. Make its policy actions difficult to interpret.

Would be independent of political pressure.