Money and Banking Module 11

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

a. printing currency can be a profitable venture for the government

Which of the following statements regarding growth was brought out from the material in Chapter 15? a. stability results in higher output growth rates b. inflation volatility results in higher output growth rates c. there is no correlation between the volatility in growth rates and annual output growth d. the more volatile the growth rate, the higher is the annual output growth

a. stability results in higher output growth rates

the central bank for the euro area tries to achieve accountability and transparency through a: a. standard numerical objective for inflation over the medium term b. specific target for unemployment and economic growth c. following the monetary policy guidance of the European Parliament d. specific target for the dollar euro exchange rate

a. standard numerical objective for inflation over the medium term

Which would you recommend to the president of a newly independent country that asks you for advice in designing the country's new central bank: a. Central bank policy decisions that are irreversible b. Central bank policy decisions that can be overturned by the democratically elected government

a. central bank policy decisions that are irreversible

once the FOMC meetings adjourn, the public is made aware of the FOMC's decision: a. immediately after the meeting b. 48 hours after the meeting adjourns c. within 5 business days d. 24 hours after the meeting adjourns

a. immediately after the meeting

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.

a. it makes it clear what specific goals the central bankers are pursuing

Evaluate the following statement: "The Treaty of Maastricht helped solve the time consistency problem in monetary policy but not fiscal policy." This resulted from features such as (select all that apply): a. long terms for the Executive Board b. reappointment of members of the Executive Board c. irreversible policy decisions d. treaty modification for ECB structure change e. treaty modification for change from economic growth mandate

a. long terms for the Executive Board c. irreversible policy decisions d. treaty modification for ECB structure change

which of the following statements is most true concerning economic policy in the U.S.? a. Monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions. b. Fiscal policymakers tend to focus on inflation and unemployment while monetary policymakers focus most of their attention on the money supply and the exchange rate. c. Fiscal policymakers tend to focus more on pleasing their constituents and so are willing to sacrifice the short run for the long run. d. Monetary policy independence is enshrined in the U.S. Constitution.

a. 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: a. money becomes less useful as a store of value b. money performs better as a unit of account c. it may be an inconvenience, but resources are still allocated efficiently d. prices become highly useful for conveying information

a. money becomes less useful as a store of value

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.

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

the efficient allocation of resources requires: a. that prices reflect the relative value of goods and services b. that inflation not exceed three percent a year c. deflation d. prices to remain constant

a. that prices reflect the relative value of goods and services

which of the books used at the FOMC meetings contains a discussion of financial markets and current policy options? a. the Tealbook b. the Beigebook c. the Greenbook d. both the Beigebook and Greenbooks

a. the Tealbook

the make-up of the Governing Council of the European Central Bank and the methods used to calculate price stability for the monetary system can potentially result in: a. small countries having undue influence on the decisions of the Council b. monetary policy that is well suited for some countries but ill-suited for others c. a policy for the median country rather than a policy well suited for any country d. all of the results listed are possible

d. all of the results listed are possible

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

d. it weakens the independence of the central bank

members of the Eurosystem agree to: a. pursue independent domestic monetary policies based on what is best for their own country, but not all member countries have adopted the euro as their currency. b. share a common monetary policy and fiscal policy. c. use the euro as their currency, but each country still pursues an independent monetary policy. d. share a common monetary policy and use the euro as their currency.

d. share a common monetary policy and use the euro as their currency

the Reserve Banks of the Federal Reserve System are owned by: a. the taxpayers in their districts b. the U.S. Treasury c. the Board of Governors d. the commercial banks in their districts

d. the commercial banks in their districts

the Chairman of the FOMC is: a. the Secretary of the Treasury b. the Vice-Chairman of the Board of Governors c. the Chairman of the Board of Governors d. the President of the New York Fed

c. the Chairman of the Board of Governors

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

c. the Federal Reserve

the ability to control inflation expectations is most closely related to a central bank's: a. transparency b. credibility c. accountability d. willingness to communicate

b. credibility

based on the membership of the Eurosystem in 2017, the median country is likely to be: a. very large b. fairly small c. Italy d. growing more rapidly than the others

b. fairly small

the Federal Reserve Act explicitly requires that the Board of Governors represents each of the following, except: a. commercial interests b. foreign interests c. financial interests d. agricultural interests

b. foreign interests

the FOMC controls the real interest rate: a. in inflation changes quickly b. if inflation doesn't change quickly c. only if it adjust the federal funds rate to match the changes in the rate of inflation d. only on an annual basis

b. if inflation doesn't change quickly

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

b. in a representative democracy, monetary policymakers must be held accountable to the public

______ makes output unstable. It also increases risk and therefore the risk premium on bonds. With a higher risk premium, it is more costly for firms to borrow. Firms will decrease their investments, which will hurt economic growth. a. unstable growth b. interest rate instability c. exchange rate instability d. inflation

b. interest rate instability

the idea that central banks should be independent of political pressure is an idea that: a. has been around since there were central banks b. is relatively new c. every central bank was founded upon d. became quite popular in the early 1900s

b. is relatively new

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

b. there are tradeoffs that make pursuing all of their goals simultaneously impossible

The ECB's Governing Council has price stability as a primary objective. It has defined price stability as: a. a zero rate of inflation b. an inflation rate less than 5 percent c. an inflation rate below, but close to, 2 percent over the medium term d. an inflation rate in the three to five percent range

c. an inflation rate below, but close to, 2% over the medium term

criteria used to judge a central bank's independence include each of the following, except: a. budgetary independence b. long terms for members c. cabinet or ministry level of authority d. irreversible decisions

c. cabinet or ministry level of authority

central banks are in a position to control risk in the economy because they: a. control the unemployment rate b. control the economy's real growth rate c. control short-term interest rates d. can change taxes

c. control short-term interest rates

the primary purpose of meetings of the FOMC is to: a. set the required reserve rate b. set the discount rate c. decide on how to influence financial conditions d. set the prime rate

c. decide on how to influence financial conditions

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

______ makes the revenue from exports and the costs of imports unpredictable. This hurts individuals engaged in foreign trade. This problem is particularly severe in emerging markets countries. a. unstable growth b. interest rate instability c. exchange rate instability d. inflation

c. exchange rate instability

the specific goals of central banks include each of the following, except: a. high and stable real growth b. low and stable inflation c. high levels of exports d. low and stable unemployment

c. high levels of exports

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

c. improved its skill at securing financial stability

In terms of economic growth, the central bank would like to: a. have the maximum growth rate possible b. keep the growth rate averaging 0 c. keep the economy close to its potential or sustainable growth rate d. balance every recession with a boom

c. keep the economy close to its potential or sustainable rate of growth

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 0

c. lowered bank reserve requirements

in its role as the bankers' bank, the Federal Reserve performs all of the following services, except: a. collecting and making available data on business conditions b. making discount loans c. managing U.S. Treasury borrowings d. clearing paper checks and transferring funds electronically

c. managing U.S. Treasury borrowings

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

c. monetary policies that cannot be reversed by anyone outside of the central bank

considering state chartered banks: a. most elect to join the Federal Reserve System b. those with assets exceeding $100 million must join the Federal Reserve System c. most elect not to join the system d. only those that join the system must abide by reserve requirements

c. most elect not to join the system

member banks of the Federal Reserve System include: a. only nationally chartered banks b. all state chartered banks with assets exceeding $100 million c. nationally chartered banks and state chartered banks that decide to join d. nationally chartered banks and all state chartered banks

c. nationally chartered banks and all state chartered banks that decide to join

the services the Federal Reserve provides to foreign central banks and other international organizations are handled: a. directly by the Board of Governors in Washington D.C. b. by all of the Reserve banks c. only by the Reserve Bank in New York d. only by the Reserve Bank in San Francisco

c. only by the Reserve Bank in New York

buying and selling U.S. Treasury Securities for the Fed's own portfolio is called: a. managing the float b. discount buying c. open market operations d. reserve adjustment

c. open market operations

the autonomy of modern central banks means that governments cannot increase their spending by: a. raising taxes b. issuing bonds c. printing money d. either issuing bonds or printing money; both represent debt

c. printing money

most of the Fed's income is: a. paid to member banks in the form of a dividend b. sent to the FDIC to shore up the depositor insurance fund c. returned to the U.S. Treasury d. used to build the Fed's portfolio of securities

c. returned to the U.S. Treasury

currently the requirement of holding a non-interest-bearing reserve account at the Fed must be met by: a. all banks, member or not b. only member banks c. member banks and nonmember banks over $100 million in assets d. only nationally chartered banks

a. all banks, member or not

each of the Reserve Banks has a president who is: a. appointed by the bank's board of directors but approved by the board of governors b. appointed by the board of governors but approved by the bank's board of directors c. elected by the commercial banks in their district d. selected from the Board of Directors

a. appointed by the bank's board of directors but approved by the board of governors

Some people have argued that the high inflation of the late 1970s was a consequence of the fact that Federal Reserve Board Chairman Arthur Burns did what President Richard Nixon wanted him to do. What policy do you think Nixon might have wanted? Because politicians are elected for relatively (short terms / long terms), they often favor (expansionary monetary / contractionary monetary / contractionary fiscal / expansionary fiscal) policy that will (decrease/increase) economic growth in the (long run/short run)

Because politicians are elected for relatively short terms, they often favor expansionary monetary policy that will increase economic growth in the short run.

The Maastricht Treaty, which established the European Central Bank, states that the governments of the countries in the euro area must not seek to influence the members of the central bank's decision-making bodies. Why is freedom from political influence crucial to the ECB's ability to maintain price stability? Because politicians are elected for (short/long) terms, they have an incentive to create (short-term/long-term) prosperity at the expense of (future/current inflation). If they can influence the central bank, they will push for (expansionary/contractionary) monetary policy that (increases/decreases) economic growth in the (short run/long run) but leads to inflation in the (short run/long run)

Because politicians are elected for short terms, they have an incentive to create short-term prosperity at the expense of future inflation. If they can influence the central bank, they will push for expansionary monetary policy that increases economic growth in the short run but leads to inflation in the long run

Do you think the FOMC has an easier or a harder time agreeing on monetary policy than the Governing Council of the ECB? Why? Select all that apply. a. The presence of national biases may make agreement among members of the Governing Council of the ECB more difficult. b. The presence of national biases may make agreement among members of the FMOC more difficult. c. The FMOC has very little regional bias d. The Governing Council of the ECB has very little regional bias e. Fewer members are likely to have an easier time coming to a decision than a larger group.

FOMC will have an easier time a. the presence of national biases may make agreement among members of the Governing Council of the ECB more difficult c. the FMOC has very little regional bias e. fewer members are likely to have an easier time coming to a decision than a larger group

the stability of the financial system is enhanced by the ability of central banks to: a. be a lender of last resort b. provide loans to insolvent banks c. provide deposit insurance d. convert poorly run banks into branches of the central bank

a. be a lender of last resort

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

a. be independent of political pressure

which statement best completes the following sentence; "the U.S. dollar is to the fifty states as the euro is to...?" a. the European Central Bank b. the states of the European Monetary Union c. the National Central Banks d. the European System of Central Banks

b. the states of the European monetary union

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

d. issuing currency

Evaluate the following statement: "The Treaty of Maastricht helped solve the time consistency problem in monetary policy but not fiscal policy." The time consistency problem for monetary policy was addressed by establishing a (highly independent / highly centralized / politically dependent) central bank.

The time consistency problem for monetary policy was addressed by establishing a highly independent central bank.

Evaluate the following statement: "The Treaty of Maastricht helped solve the time consistency problem in monetary policy but not fiscal policy." The treaty lacked credible ways to ensure (good fiscal performance in each country / increased government spending in each country / lower government spending in each country). Perhaps more important, fiscal well-being was undermined by unforeseen risks, such as the need in several countries to (recapitalize / restructure / monetize) their banking systems.

The treaty lacked credible ways to ensure good fiscal performance in each country. Perhaps more important, fiscal well-being was undermined by unforeseen risks, such as the need in several countries to recapitalize their banking systems.

Do you think the current procedures for appointing members to the Board of Governors are consistent with the principles of good central bank design? (yes/no) Explain your answer. a. Because the governors are appointed by members of the banking community, this reduces the opportunity for political influence and is consistent with central bank independence. b. Because the long length of the terms of the members and the fact they are staggered reduces the opportunity for political influence on the selection of the governors and so these procedures are consistent with central bank independence. c. Because the length of the terms coincides with the electoral cycle, this reduces the opportunity for political influence and is consistent with central bank independence. d. Because the long length of the terms of the members is inconsistent with central bank independence.

Yes b. Because the long length of the terms of the members and the fact they are staggered reduces the opportunity for political influence on the selection of the governors and so these procedures are consistent with central bank independence.

over very long periods, U.S. real economic growth averaged around: a. 3% per year b. 1% per year c. 5% per year d. 7% per year

a. 3% per year

Sweden is: a. a member of the European Union but not a member of the Euro system b. a member of the Euro system but not a member of the European Union c. not a member of the Euro system or the European Union d. a member of both the European Union and the Euro system

a. a member of the European Union but not a member of the Euro system

to make sure the U.S. President cannot unduly influence the Board of Governors: a. the terms of the governors are staggered b. the law prevents a resident from appointing more than one governor c. the terms of the governors are ten years long d. only three governors can be replaced in any one year

a. the terms of the governors are staggered

one problem for the Federal Reserve regarding setting policy stems from the fact that: a. there are multiple goals that may be inconsistent with each other b. there are more policy instruments than goals c. Congress sets very tight goal ranges that the central bankers must hit d. the membership of its governing board changes so often

a. there are multiple goals that may be inconsistent with each other

______ makes people less sure about their future incomes and are less willing to borrow. Another reason for the decrease in borrowing is that the uncertainty with this problem increases the risk premium and makes borrowing more costly. Lower levels of borrowing reduce investment. a. unstable growth b. interest rate instability c. exchange rate instability d. inflation

a. unstable growth

the number of voting members on the Federal Open Market Committee is: a. 7 b. 12 c. 19 d. 8

b. 12

by 2017, the euro had become the currency of: a. every country in Europe b. 19 countries in Europe c. 25 countries in Europe d. all European countries except Great Britain

b. 19 countries in Europe

the Federal Reserve was created in: a. 1929 b. 1913 c. 1909 d. 1945

b. 1913

How many members are on the Board of Governors of the Federal Reserve System? a. 12, 1 for each district b. 7 c. 9 d. 14

b. 7

The attendees at the FOMC meetings receive information prior to the meetings that is contained in books with colorful names. The information that is released to the public prior to the meetings is from the: a. Bluebook only b. Beigebook only c. Bluebook and Greenbook, but not the Tealbook d. Beigebook and Bluebook but not the Greenbook

b. Beigebook only

How do long terms of office for central bankers help overcome the problem of time inconsistency in monetary policy? Select all that apply. a. Long appointments allow central bankers to renege on desirable short-run policies for long-term gains. b. Long appointments allow central bankers to resist reneging on desirable long-run policies for short-term gains. c. Long terms also allow central bankers to develop reputations that enhance policy credibility.

b. Long appointments allow central bankers to resist reneging on desirable long-run policies for short-term gains. c. Long terms also allow central bankers to develop reputations that enhance policy credibility.

Which of the following cities has a Federal Reserve Bank located in it? a. Denver b. Philadelphia c. Detroit d. Miami

b. Philadelphia

executive board members of the European System of Central Banks are appointed by: a. a committee made up of bank presidents in the member countries b. a committee made up of heads of state of member countries c. the finance ministers of member countries d. the directors of the National Central Banks

b. a committee made up of heads of state of member countries

the Federal Reserve's Fedwire system is used mainly to provide: a. a means for foreign banks to transfer funds to U.S. banks b. an inexpensive and reliable way for financial institutions to transfer funds to one another c. an inexpensive way for individuals to pay their bills on-line d. a means for the Treasury to collect tax payments

b. an inexpensive and reliable way for financial institutions to transfer funds to one another

the federal funds rate is the interest rate: a. the Fed charges banks who borrow from it b. banks charge each other for overnight loans on excess reserves held at the Fed c. the U.S. Treasury charges banks that need emergency funds d. the FDIC charges banks that need to borrow from it to meet depositor demands

b. banks charge each other for overnight loans on excess reserves held at the Fed

The objectives set for the Fed by Congress are: a. very specific; this adds to the Fed's accountability b. by design, quite vague, allowing the Fed to really set its own goals c. specific regarding inflation, but vague on all other goals d. specific on the growth rate for the economy, but vague on all other objectives

b. by design, quite vauge, allowing the Fed to really set its own goals

higher than expected inflation will increase the: a. real interest rate borrowers pay on fixed rate mortgages b. nominal amounts people need to save for retirement c. real interest rate savers earn on fixed rate CDs d. real interest rates both paid on mortgages and earned on CDs

b. nominal amounts people need to save for retirement

The Federal Reserve's policy regarding announcing its policy decisions has: a. always been to announce it immediately; that was part of the original Federal Reserve Act of 1913. b. only recently gone to immediate announcement; until 1994 these policy decisions were secret. c. been to release the decisions immediately since its early failure at preventing the Great Depression. d. changed so that now the Fed does not release its decisions publicly.

b. only recently gone to immediate announcement; until 1994 these policy decisions were secret

which of the following statements is not true? a. The potential growth rate in the U.S. economy may have fallen following the financial crisis of 2007-2009. b. Periods of growth below the potential level are periods of low unemployment. c. Periods of growth above the potential level are periods of low employment. d. Periods of growth below the potential level are periods of high unemployment.

b. periods of growth below the potential level are periods of low unemployment

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

b. providing deposit insurance

stable inflation implies: a. that the rate of inflation averaged over many years is zero b. that inflation is predictable c. that the rate of inflation conceals relative price changes d. low rates of unemployment

b. that inflation is predictable

which of the books used at the FOMC meetings can be characterized as less quantitative than the other 2? a. the Tealbook b. the Beigebook c. the Greenbook d. the white paper released to the press

b. the Beigebook

Comparing the European and the U.S. central bank systems, the Executive Board of the European system resembles: a. the FOMC b. the Board of Governors c. the Presidents of the regional Federal Reserve Banks d. the Chairman of the Board of Governors of the Fed

b. the Board of Governors

the central bank of the United States is: a. the Bank of America b. the Federal Reserve c. the U.S. Treasury d. the Bank of the United States

b. the Federal Reserve

Which would you recommend to the president of a newly independent country that asks you for advice in designing the country's new central bank: a. The central bank has to submit a proposal for funding to the government each year. b. The central bank finances itself from the earnings on its assets and turns the balance over to the government.

b. the central bank finances itself from the earnings on its assets and turns the balance over to the government

Which would you recommend to the president of a newly independent country that asks you for advice in designing the country's new central bank: a. The central bank policymakers are appointed for periods of four years to coincide with the electoral cycle for the government. b. The central bank policymakers are appointed for 14-year terms.

b. the central bank policymakers are appointed for 14-year terms

the Federal Reserve's Open Market Committee currently meets: a. monthly b. bi-weekly c. 8 times a year d. once every quarter, unless a crisis warrants more frequent meetings

c. 8 times a year

which of the following statements best completes the following: "the Fed's independence can only be revoked by...?" a. the U.S. President b. the Secretary of the Treasury c. Congress d. changing the U.S. Constitution

c. Congress

the Governors of the Federal Reserve System are appointed by the: a. member banks from their home district b. Board of Directors of the Reserve Bank from their home district c. President of the United States d. chairman of the Federal Reserve System

c. President of the United States

The members of the Board of Governors in recent years have been all of the following, except: a. former academic economists b. former economic forecasters c. a current Secretary of the Treasury d. former bankers

c. a current Secretary of the Treasury

a typical FOMC meeting would best be described as: a. an informal meeting with significant give and take among participants b. an informal meeting with the Chairman as a passive observer c. a fairly formal session with not much give and take d. a press conference where the financial press can ask questions regarding the Fed's view of the economy

c. a fairly formal session with not much give and take

most economists agree that the target rate of inflation for the central banks should be: a. between 7 and 9% b. less than 0 c. above 0 for fears of deflation d. something over 3 but less than 6%

c. above 0 for fears of deflation

the number of regional Federal Reserve Banks is: a. 9 b. 7 c. 5 d. 12

d. 12

which of the following statements is most accurate? a. Central bank statements in developed countries are similar both in length and in the speed with which policy changes are announced. b. Central bank statements in developed countries differ both in length and in the speed with which policy changes are announced. c. Central bank statements in developed countries are similar in length but differ in the speed with which policy changes are announced. d. Central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced.

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

in the United States, the Federal Reserve is asked to: a. deliver on a specific inflation target set by Congress b. meet an explicit target for economic growth c. meet a specific target for unemployment each year d. deliver price stability as one of a number of objectives

d. deliver price stability as one of a number of objectives

the lines drawn to establish Federal Reserve Districts were based on: a. solely population distribution in 1914 b. solely economic forces that existed in 1929 c. economic and political forces that existed in 1914 d. economic and political forces as well as population distribution in 1914

d. economic and political forces as well as population distribution in 1914

Which of the following is a false statement about the structure of the Federal Reserve System? a. banker and business interests are reflected b. state and regional interests are reflected c. government (public) and private interests are reflected d. exporter and importer interests are reflected

d. exporter and importer interests are reflected

the rationale for the existence of central banks is mainly that: a. financial markets lack transparency b. they are needed for supervision of banks c. financial intermediation cannot occur without a central bank d. financial systems are prone to periods of extreme volatility

d. financial systems are prone to periods of extreme volatility

______ creates uncertainty, which reduces investment and hurts growth. When this is higher than expected, the real value of the payments received by lenders falls. Someone on a fixed salary is also hurt when this is higher than expected. a. unstable growth b. interest rate instability c. exchange rate instability d. inflation

d. inflation

do you think the current policy of maintaining irreversible policy decisions is consistent with the principles of good central bank design? (yes/no) Explain your answer. a. the Fed is more transparent due to the irreversibility of its policy decisions b. irreversible policy decisions are inconsistent with central bank independence c. irreversible policy decisions promote the independence of central bankers d. irreversible policy decisions promote increased accountability

yes c. irreversible policy decisions promote the independence of central bankers