Money, Banking & Finance: Week 4-6
According to Fisher's equation, the relation between real and nominal interest rates is (approximately) given by which of the following? A. i real = i nominal - inflation B. i nominal = i real - inflation C. inflation = i real + i nominal D. i real = i nominal x inflation
A
According to Keynes, an increase in interest rates causes _____ in velocity, ceteris paribus. A. an increase B. a decrease C. no change D. cannot be determined
A
According to Keynes, income affects the _____ demand for money. A. precautionary and transactions B. speculative C. financial D. none of the above
A
Crises that occasionally hit financial markets will increase the demand for money since: A. the risk of holding money relative to other financial assets decreases. B. the return on financial assets increases. C. the return on money increases. D. there is no risk with holding money.
A
Criteria used to judge a central bank's independence include each of the following, except: A. cabinet or ministry level of authority. B. budgetary independence. C. irreversible decisions. D. long terms for members.
A
How many districts are there in the Federal Reserve? A. 12 B. 50 C. 435 D. none of the above
A
Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to A. propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies. B. withhold appropriations from the Federal Open Market Committee. C. instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve. D. withhold appropriations from the Board of Governors.
A
One of the central banks in U.S. history was killed by Andrew Jackson. A. True B. False
A
Over the past seventy-five years, power within the Federal Reserve has shifted from A. the Federal Reserve Banks to the Board of Governors in Washington. B. domestic Federal Reserve banks to foreign Federal Reserve banks. C. the Board of Governors to the Federal Reserve Bank of New York. D. the Federal Reserve Bank of New York to the Federal Reserve Bank of Dallas.
A
Real interest rates have a greater impact on investment the nominal rates. A. True B. False
A
Real interest rates were low during the early years of the Great Depression, since nominal rates were very low and there was significant deflation A. True B. False
A
The Bank of the United States was chartered in the A. 1700s. B. 1800s. C. 1900s. D. 2000s.
A
The ECB is more independent than the Federal Reserve. A. True B. False
A
The FRBNY has the job of conducting open market operations. A. True B. False
A
The Federal Reserve is considered independent because A. it has its own source of funds. B. members of the Board of Governors have lifetime terms. C. the chairman cannot be fired by the President. D. all of the above.
A
The credit view emphasizes the role of bank lending as a transmission for monetary policy. A. True B. False
A
The effect of EMP (Expansionary Monetary Policy - increasing the money supply) on Tobin's q affects the economy primarily through firm investment. A. True B. False
A
The group that makes decisions about the conduct of monetary policy for the ECB is A. the Governing Council. B. the FOMC. C. the Executive Board. D. none of the above.
A
The main problem from inflation as seen by most economists is: A. inflation creates risk. B. during periods of inflation some prices fall. C. inflation raises prices more than wages. D. inflation harms lenders more than it benefits borrowers.
A
The panic of 1907 led to the chartering of the current Federal Reserve. A. True B. False
A
The rationale for the existence of central banks is mainly that: A. financial systems are prone to periods of extreme volatility. B. financial intermediation cannot occur without a central bank. C. financial markets lack transparency. D. they are needed for the supervision of banks.
A
The relationship between the velocity of money and interest rates is: A. positive but not stable. B. positive and stable. C. negative but not stable. D. negative and stable.
A
The wealth effect of monetary policy focuses on the effect of money supply changes on the value of stocks and houses. A. True B. False
A
There was a period of time when the United States did not have a central bank. A. True B. False
A
What is the Fed's 'Dual Mandate' (twin goals)? A. stable prices and maximum employment B. zero inflation and zero unemployment C. maximum employment and minimum unemployment D. low interest rates and zero inflation
A
Which of the following was an objective of the framers of the Federal Reserve System? A. Decentralized power B. Consolidation of the banking industry C. Elimination of private-sector influence D. Executive branch power
A
Why do some favor less Fed independence? A. Believe that Fed should be more accountable to the public B. Fear of Fed power C. Belief that Fed independence undercuts fiscal policy D. Concern about the profits the Fed makes
A
A decline in the yields earned by bonds should: A. not impact the demand for money since money doesn't earn any interest. B. increase the demand for money. C. increase the velocity of money. D. also decrease the demand for money.
B
A rate of inflation that exceeds the growth rate of money for a country could be explained by: A. a constant velocity of money. B. an increasing velocity of money. C. a decreasing velocity of money. D. a growing real economy.
B
According to Tobin's q theory, expansionary monetary policy will _____ q and _____ investment in plant and equipment A. decrease, decrease B. increase, increase C. decrease, increase D. increase, decrease
B
According to the Keynesian speculative demand for money, at high interest rates the public will A. hold money rather than bonds B. hold bonds rather than money C. hold neither bonds or money D. buy stocks
B
According to the equation of exchange, if real output and the money supply stay the same and the price level increases: A. nominal GDP remains constant. B. the velocity of money has to increase. C. the real GDP had to rise. D. the velocity of money has to decrease.
B
According to the quantity theory of money demand, A. an increase in money will cause the demand for money to fall. B. interest rates have no effect on the demand for money. C. an increase in interest rates will cause the demand for money to fall. D. a decrease in interest rates will cause the demand for money to increase.
B
All of the following could represent the transmission of monetary policy, except: A. firms altering their growth plans. B. income tax rates changing. C. households altering their spending on durable goods. D. net exports changing.
B
An important function of the regional Federal Reserve Banks is A. setting reserve requirements. B. clearing checks. C. setting margin requirements. D. determining monetary policy.
B
Central bank accountability means: A. central bankers are only accountable to the banks in their respective countries. B. politicians will establish goals and central bankers will report on their progress. C. central bankers are not accountable to any elected officials. D. central bankers must hold press conferences to explain their monetary policy views.
B
Countries with independent central banks tend to have higher inflation. A. True B. False
B
Due to asymmetric information in credit markets, monetary policy may affect economic activity through the broad credit channel, where an increase in the money supply A. raises stock prices, lowering the cost of new capital relative to firms' market value, thus increasing investment spending. B. raises firms' net worth, decreasing adverse selection and moral hazard problems, thus increasing banks' willingness to lend to finance investment spending. C. lowers the value of the dollar, increasing net exports and aggregate demand. D. raises the level of bank reserves, deposits, and bank loans, thereby raising spending by those individuals who do not have access to credit markets.
B
During World War II, the Fed accommodated the war effort by: A. significantly curtailing credit in the economy. B. keeping bond prices high and interest rates low. C. selling any Treasury securities the public did not purchase. D. curtailing credit and keeping bond prices high.
B
EMP (Expansionary Monetary Policy) can expand lending due to an increase in the net worth of firms and an increase in asymmetric information issues. A. True B. False
B
EMP (Expansionary Monetary Policy) raises the price of fine art, which is part of the _____ channel for monetary policy. A. interest rate B. wealth C. credit D. fiscal
B
Federal Reserve Banks are owned by A. the U.S. Government B. banks that are members of the Federal reserve System C. the governments of the states in which they are located D. private share holders
B
Funding for the operations of the Board of Governors of the Federal Reserve is derived from A. taxes collected from commercial banks. B. earnings of the Federal Reserve district banks. C. the governments of the states in which the district banks operate. D. appropriations from the United States Congress.
B
The Fed cannot be audited A. True B. False
B
The Federal Reserve is considered to be independent since it cannot be affected by Congressional legislation. A. True B. False
B
The chairman of the Board of Governors has sole discretion on changes in the money supply. A. True B. False
B
The market value of a company divided by the cost of its physical capital is called A. net worth. B. Tobin's q. C. cash flow. D. none of the above.
B
The monetary policy framework is: A. the law that created the Federal Reserve System. B. a way to prioritize and implement the central bank's objectives when they are in conflict. C. the idea that central banks should be interconnected across countries. D. a growing belief that there should be one central bank headquartered at the World Bank.
B
The opportunity cost of holding money is: A. the rate of inflation. B. the nominal interest rate. C. the nominal interest rate less the cost of converting a bond to cash. D. the real interest rate.
B
The political business cycle refers to the phenomenon that just before elections, politicians enact _________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies. A. contractionary; a higher inflation rate; expansionary B. expansionary; a higher inflation rate; contractionary C. expansionary; higher unemployment; contractionary D. contractionary; higher unemployment; expansionary
B
The portfolio demand for money reflects: A. the money we hold for our everyday transactions. B. the portion of wealth people desire to hold in the form of money. C. the money we hold for our everyday transactions and the money we hold to purchase stocks and bonds and other financial securities. D. the money we hold to purchase stocks and bonds and other financial securities.
B
The transmission mechanism for monetary policy involving the net worth of firms is part of the _____ of money supply changes. A. wealth effect B. credit view C. real interest rate effect D. none of the above
B
Timing and historical evidence give conflicting evidence concerning the effects of changes in the money supply during the Great Depression. A. True B. False
B
Which of the following is NOT a function of the Federal Reserve? A. conduct economic research B. regulate brokers and insurance companies C. evaluate bank mergers D. These are all functions of the Fed.
B
Which of the following is equivalent to velocity? A. MV/PY B. YP/M C. MP/Y D. none of the above
B
A liquidity trap occurs when A. money demand falls. B. inflation is zero. C. nominal interest rates are zero. D. all of the above.
C
An expansionary monetary policy may cause asset prices to rise, thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise. This monetary transmission mechanism is part of A. Tobin's q theory. B. the wealth effect. C. the broad credit channel D. the cash flow effect.
C
Asymmetric information is important for which of the following channels for monetary policy? A. Tobin's q B. consumption C. credit D. all of the above
C
Because of _____, real interest rates were _____ than the nominal rates, early in the Great Depression. A. inflation, higher B. inflation, lower C. deflation, higher D. deflation, lower
C
Each of the following is a transmission channel of monetary policy, except: A. the exchange-rate channel. B. the asset-price channel. C. the tax-impact channel. D. the balance-sheet channel.
C
How many different central banks has the United States had in its history? A. 1 B. 2 C. 3 D. 4
C
If a borrower's net worth increases: A. the supply of loans decreases. B. the likelihood of moral hazard also increases. C. the moral hazard risk for the potential lenders decreases. D. the borrowers are likely to want to take less risk.
C
If an investor thinks interest rates are likely to rise, she would: A. not alter her bond portfolio until interest rates actually rise. B. not change her money holdings at all. C. sell her bonds and hold more money. D. buy more bonds now and hold less money.
C
If the money supply is $500 and nominal income (P x y) is $3,000, the velocity of money is A. 1/60. B. 1/6. C. 6. D. 60.
C
If the nominal interest rate is 0 and (expected) inflation is -2% then the real rate is A. -2% B. 0% C. 2% D. 20%
C
Independence of a central bank refers to independence from A. foreign influence. B. the bond market. C. other parts of the government. D. all of the above.
C
People holding money in anticipation that bond yields will rise is an example of A. money demand for transactions. B. precautionary demand. C. speculative demand. D. none of the above.
C
Supporters of Federal Reserve independence contend that independence from the rest of the federal government leads to lower A. reserve requirements. B. rates of unemployment. C. inflation rates. D. interest rates.
C
The Federal Open Market Committee usually meets ________ times a year. A. one B. two C. eight D. twelve
C
The only solution available to a country experiencing extremely high rates of inflation is to: A. raise interest rates. B. revert to a gold standard. C. reduce money growth. D. peg your currency to another country's currency.
C
The quantity theory of money is a theory of how in the long-run A. interest rates are determined. B. the real value of aggregate income is determined. C. the price level and inflation is determined D. the money supply is determined.
C
The velocity of money equals: A. nominal GDP times the price level. B. nominal GDP divided by the price level. C. nominal GDP divided by the money supply. D. nominal GDP times the money supply.
C
To avoid deflation, a central bank should A. decrease the money supply. B. decrease inflation. C. keep real interest rates low or negative D. reduce the money supply
C
A primary goal of central banks is to: A. reduce the idiosyncratic risk that impacts specific investments. B. keep stock and bond prices high. C. keep inflation rates high. D. reduce systematic risk.
D
Buying and selling U.S. Treasury Securities for the Fed's own portfolio is called: A. discount buying. B. reserve adjustment. C. managing the float. D. open market operations.
D
Each governor on the Board of Governors can serve A. one full nonrenewable eight-year term plus part of another term. B. only one nonrenewable eight-year term. C. only one nonrenewable fourteen-year term. D. one full nonrenewable fourteen-year term plus part of another term.
D
How many members (including the chairman) are there on the Federal Reserve Board of Governors? A. 5 B. 12 C. 50 D. none of the above
D
If prices are not stable: A. money performs better as a unit of account. B. prices become highly useful for conveying information. C. it may be an inconvenience, but resources are still allocated efficiently. D. money becomes less useful as a store of value.
D
If the target federal funds rate reaches the lower bound: A. the FOMC would simply reset the target. B. monetary policy would no longer be of use. C. the FOMC would run out of policy options. D. the FOMC would turn to unconventional measures, such as forward guidance.
D
In its role as bank for the U.S. government, the Federal Reserve performs all of the following services, except: A. managing U.S. Treasury borrowings. B. issuing new currency. C. maintaining the U.S. Treasury's bank account. D. making discount loans.
D
Increasing the money supply when short-run nominal interest rates are already at 0 is called A. expansionary monetary policy B. liquidity trap C. forward guidance D. quantitative easing
D
Which of the following are functions of a central bank? A. regulating banks B. clearing checks C. acting as lender of last resort D. all of the above
D
Which of the following could explain an increase in velocity? A. credit cards B. wire transfers C. cash management accounts D. all of the above
D
Which of the following is/are a result of expansionary monetary policy A. increasing wealth and consumption B. raising Tobin's q and investment C. reducing asymmetric information problems and thus increasing lending D. all of the above
D
Which of the following statements is most true concerning economic policy in the U.S.? A. 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. B. Monetary policy independence is enshrined in the U.S. Constitution. 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 policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions.
D
Who of the following always serve on the FOMC? A. the Chairman of the Board of Governors B. the Board of Governors C. the President of the FRBNY D. all of the above
D
When a central bank increases the money supply A. interest rates fall. B. firm q values rise. C. firm cash flows rise. D. all of the above.
D
When was the current Federal Reserve first chartered? A. 1776 B. 1892 C. 1914 D. 1945
C
Where does the Fed get its operating income from? A. Congress B. President C. Interest on bonds D. Car washes
C
Which function was the Federal Reserve originally designed to perform? A. control the money supply B. clearing checks C. acting as lender of last resort D. all of the above
C
Which of the following is NOT an entity of the Federal Reserve System? A. The Board of Governors B. The Federal Open Market Committee C. The Comptroller of the Currency D. Federal Reserve Banks
C
Which of the following would reflect the transactions demand for money? A. Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon B. Buying a U.S. Treasury security using funds from your checking account C. Keeping funds in your checking account to pay your rent D. Keeping funds in your savings account because the interest rate looks relatively attractive
C
Which tool does the Fed use most commonly to control the money supply? A. changing the discount rate B. changing the reserve requirement C. open market operations D. none of the above
C
Key assumptions behind the quantity theory of money include: A. the money supply is fixed. B. the percentage change in the price level equals the percentage change in real GDP. C. the change in nominal GDP is zero. D. the velocity of money is constant.
D
Monetary policy can affect the economy through A. household wealth. B. investment. C. credit markets. D. all of the above.
D
Monetary policy can impact bank lending through changes in A. interest rates. B. deposits. C. net worth of banks. D. all of the above.
D
The Federal Reserve and the European Central Bank are exceptional among central banks due to A. their independence. B. their concern about inflation. C. their involvement in government spending decisions. D. none of the above.
D
The Keynesian transactions demand for money is _____ related to interest rates, and the speculative demand for money is _____ related to interest rates. A. positively, positively B. positively, negatively C. negatively, positively D. negatively, negatively
D
The autonomy of modern central banks means that governments cannot increase their spending by: A. raising taxes. B. either issuing bonds or printing money; both represent debt. C. issuing bonds. D. printing money.
D
The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize A. profits. B. conflict with the executive and legislative branches of government. C. the public's welfare. D. its own welfare.
D
