Question 1

The Fed tends not to use discount policy as its principal tool in influencing the money supply since

Accepted Answer

A)  discount loans do not affect the money supply.
B)  it does not have as much control over discount loans as it has on open market operations.
C)  it is prohibited from doing so by an act of Congress.
D)  it prefers to use reserve requirements. B

Question 2

Dynamic open market operations

Accepted Answer

A)  are aimed at achieving changes in monetary policy.
B)  are used much more frequently than defensive open market transactions.
C)  are used to offset disturbances to the monetary base.
D)  make it easy to deduce the Fed's intentions for monetary policy.

Question 3

In the federal funds market diagram, a decrease in the required reserve ratio

Accepted Answer

A)  shifts the demand curve for reserves to the left.
B)  increases the federal funds rate.
C)  results in a multiple expansion of deposits, which increases the equilibrium level of reserves held by banks.
D)  shifts the supply curve for reserves to the right.

Question 4

What was the name of the plan, enacted in 2011, in which the Fed bought $400 billion worth of long-term securities while selling $400 billion worth of short-term securities?

Accepted Answer

A)  Operation Go Long
B)  Operation Twist
C)  QE2
D)  QE3

Question 5

How does the Open Market Trading Desk conduct its operations?

Accepted Answer

A)  directly with private securities dealers on the floor of the New York Stock Exchange
B)  directly with private securities dealers on the floor of the Federal Reserve Bank of New York
C)  over-the-counter electronically with private securities dealers
D)  by sending its buy and sell orders to the U.S. Treasury for execution C

Question 6

The third round of quantitative easing, announced in September 2012, was focused on purchases of:

Accepted Answer

A)  short-term Treasury bills
B)  long-term Treasury notes
C)  long-term Treasury notes and sales of short-term Treasury bills
D)  mortgage-backed securities

Question 7

Which of the following describes the relationship between the actual federal funds rate and that suggested by Taylor's rule following the recovery from the 2001 recession?

Accepted Answer

A)  The federal funds rate was above that suggested by Taylor's rule.
B)  The federal funds rate was below that suggested by Taylor's rule.
C)  The federal funds rate was about equal to that suggested by Taylor's rule.
D)  There was not a clear relationship between the federal funds rate and that suggested by Taylor's rule.

Question 8

Which of the following statements about the natural rate of unemployment is correct?

Accepted Answer

A)  Currently, most economists think that the natural rate is between 5% and 6%.
B)  Currently, most economists believe the natural rate is zero.
C)  When unemployment is at its natural rate, then only frictional unemployment remains.
D)  When unemployment is at its natural rate, then only structural unemployment remains.

Question 9

What is meant by inflation targeting? Does the Fed engage in inflation targeting?

Accepted Answer

Under inflation targeting a ce...

Question 10

Which of the following accurately describes the Fed's inflation target?

Accepted Answer

A)  It is implicit rather than explicit.
B)  It seeks to maintain an average inflation rate of 2% per year.
C)  It seeks to keep inflation at 2% all the time.
D)  Its goal is to achieve zero inflation.

Question 11

A matched sale-purchase transaction is also known as a

Accepted Answer

A)  reverse repo.
B)  discount loan.
C)  put option.
D)  federal funds loan.

Question 12

What is quantitative easing? What was the Fed's objective in implementing quantitative easing?

Accepted Answer

Quantitative easing is a policy when a c...

Question 13

If the account manager finds that the current level of bank reserves is greater than the desired level indicated in the most recent directive from the FOMC, he will

Accepted Answer

A)  order banks to reduce their reserves.
B)  order banks to raise their interest rates in an attempt to get them to loan out more of their reserves.
C)  conduct an open market purchase.
D)  conduct an open market sale.

Question 14

When Ben Bernanke referred to the exit strategy of the Fed, he was referring to:

Accepted Answer

A)  his plans to retire as chair of the Fed
B)  when the Fed would stop implementing monetary policy
C)  the process by which the Fed would shrink its balance sheet
D)  increasing the federal funds rate back to where it was prior to the financial crisis

Question 15

According to the Taylor rule, what should the federal funds rate target be if inflation is 5%, the target rate of inflation is 2%, the equilibrium real federal funds rate is 2%, full-employment real GDP is $9 trillion, and current real GDP is $8.55 trillion?

Accepted Answer

Fed funds rate targe...

Question 16

How did the federal funds rate compare to that suggested by Taylor's rule following the 2001 recession and during the Financial Crisis of 2007-2009? How would proponents of Taylor's rule evaluate monetary policy in each period.

Accepted Answer

Following the recession of 2001, the fed...

Question 17

An important problem facing the Fed is that

Accepted Answer

A)  the goals for economic growth and price stability may conflict in the short run.
B)  it lost effective control over the monetary base.
C)  it has been given responsibility for meeting policy goals, but true control over monetary policy remains with Congress.
D)  it has been given responsibility for meeting policy goals, but true control over monetary policy remains with the President.

Question 18

In practice, the Board of Governors and FOMC typically defer to the policy proposals of the:

Accepted Answer

A)  President
B)  Chair of the Fed
C)  Secretary of Treasury
D)  Speaker of the House

Question 19

The Fed has attempted to solve the problems of being unable to directly control the variables that determine economic performance and the timing lags in observing and reacting to economic fluctuations by

Accepted Answer

A)  pressing Congress for legislation which would expand its powers.
B)  using targets to meet its goals.
C)  abandoning some goals in order to achieve others.
D)  devising new monetary policy tools. B

Question 20

Most economists believe that a zero rate of unemployment

Accepted Answer

A)  is obtainable with the correct monetary policy.
B)  would result in a better functioning economy.
C)  is inconsistent with a well-functioning economy.
D)  is obtainable only if the inflation rate is also zero.

Exam 15: Monetary Policy

The Fed tends not to use discount policy as its principal tool in influencing the money supply since

Correct AnswerverifiedB

Dynamic open market operations

Correct AnswerverifiedShow Answer

In the federal funds market diagram, a decrease in the required reserve ratio

Correct AnswerverifiedShow Answer

What was the name of the plan, enacted in 2011, in which the Fed bought $400 billion worth of long-term securities while selling $400 billion worth of short-term securities?

Correct AnswerverifiedShow Answer

How does the Open Market Trading Desk conduct its operations?

Correct AnswerverifiedC

The third round of quantitative easing, announced in September 2012, was focused on purchases of:

Correct AnswerverifiedShow Answer

Which of the following describes the relationship between the actual federal funds rate and that suggested by Taylor's rule following the recovery from the 2001 recession?

Correct AnswerverifiedShow Answer

Which of the following statements about the natural rate of unemployment is correct?

Correct AnswerverifiedShow Answer

What is meant by inflation targeting? Does the Fed engage in inflation targeting?

Correct AnswerverifiedUnder inflation targeting a ce...View AnswerShow Answer

Which of the following accurately describes the Fed's inflation target?

Correct AnswerverifiedShow Answer

A matched sale-purchase transaction is also known as a

Correct AnswerverifiedShow Answer

What is quantitative easing? What was the Fed's objective in implementing quantitative easing?

Correct AnswerverifiedQuantitative easing is a policy when a c...View AnswerShow Answer

If the account manager finds that the current level of bank reserves is greater than the desired level indicated in the most recent directive from the FOMC, he will

Correct AnswerverifiedShow Answer

When Ben Bernanke referred to the exit strategy of the Fed, he was referring to:

Correct AnswerverifiedShow Answer

According to the Taylor rule, what should the federal funds rate target be if inflation is 5%, the target rate of inflation is 2%, the equilibrium real federal funds rate is 2%, full-employment real GDP is $9 trillion, and current real GDP is $8.55 trillion?

Correct AnswerverifiedFed funds rate targe...View AnswerShow Answer

How did the federal funds rate compare to that suggested by Taylor's rule following the 2001 recession and during the Financial Crisis of 2007-2009? How would proponents of Taylor's rule evaluate monetary policy in each period.

Correct AnswerverifiedFollowing the recession of 2001, the fed...View AnswerShow Answer

An important problem facing the Fed is that

Correct AnswerverifiedShow Answer

In practice, the Board of Governors and FOMC typically defer to the policy proposals of the:

Correct AnswerverifiedShow Answer

The Fed has attempted to solve the problems of being unable to directly control the variables that determine economic performance and the timing lags in observing and reacting to economic fluctuations by

Correct AnswerverifiedB

Most economists believe that a zero rate of unemployment

Correct AnswerverifiedShow Answer

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B

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C

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Under inflation targeting a ce...
View Answer

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Quantitative easing is a policy when a c...
View Answer

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Fed funds rate targe...
View Answer

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Following the recession of 2001, the fed...
View Answer

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B

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