Question 1

During 1997/1998, with strong economic growth and unemployment decreasing, Alan Greenspan and the Fed were faced with a dilemma. What was this dilemma?

Accepted Answer

A)   They had to decide whether to tighten monetary policy to slow economic growth.
B)   They had to decide whether or not to tighten monetary policy to rapidly increase economic growth.
C)   They had to decide whether or not to loosen monetary policy to slow economic growth.
D)   They had to decide whether or not to let the economy continue to grow at a sustainable rate equal to previous standards.

Question 2

________ is a condition of both inflation and recession.

Accepted Answer

A)   Stagflation
B)   Inflacession
C)   Stagcession.
D)   Recessflation

Question 3

Policies expanding the money supply and stimulating growth are beneficial for all circumstances.

Accepted Answer

A) True 
 B)False

Question 4

The targets of Fed policy have changed many times in the past 25 years.

Accepted Answer

A) True 
 B)False

Question 5

The Fed can be certain how much impact any change in reserves will have on short-term rates.

Accepted Answer

A) True 
 B)False

Question 6

Intermediate targets may include monetary aggregates and interest rates, but never include foreign currency exchange rates.

Accepted Answer

A) True 
 B)False

Question 7

The Fed cannot, with any of its monetary tools (open market operations, discount rates, etc.) , directly influence such complex economic variables as ________.

Accepted Answer

A)   the prices of goods and services
B)   the unemployment rate
C)   the growth in gross domestic product
D)   All of these

Question 8

In the Keynesian view, the Fed's decision to reduce the fed funds rate, by increasing the banking system's excess reserves, should have consequences. Which of the below is NOT one of these consequences?

Accepted Answer

A)   Banks, as the first economic units to be affected, will have more reserves and lower returns from lending in the fed funds market.
B)   Banks will reduce the cost of loans to businesses and consumers and the return (if any)  available to investors on short-term deposits.
C)   Investors will be confronted with higher yields on short-term assets, such as Treasury bills and certificates of deposit.
D)   Declines in the general cost of funding will encourage firms to expand and increase their output.

Question 9

The standard way of measuring ________ is the change in a major price index.

Accepted Answer

A)   inflation
B)   consumer behavior
C)   credit
D)   investor preference

Question 10

The expansion in the monetary aggregates was particularly rapid from 1975 to 1978, and that expansion (along with the oil shocks)  led to ________.

Accepted Answer

A)   mild inflation and a decline in the dollar's value.
B)   serious inflation and a decline in the dollar's value.
C)   serious inflation and a rise in the dollar's value.
D)   mild inflation and a moderate decline in the dollar's value.

Question 11

Which of the below statements is FALSE?

Accepted Answer

A)   The Fed can affect the rate of growth in the money supply by various means besides its control of reserves in the banking system.
B)   A problem in the implementation of monetary policy is that the Fed has no direct control over the goals that are the final objectives of its policies.
C)   The growth in the money supply depends to a substantial extent on the preferences, actions, and expectations of numerous banks, borrowers, and consumers.
D)   The Fed uses one or more of its tools to affect what are called operating targets, which are monetary and financial variables whose changes tend to bring about changes in intermediate targets.

Question 12

During March 2008, the Fed introduced a new lending facility, called the Primary Dealer Credit Facility, for investment banks and securities dealers. Briefly explain the purpose of this new facility and how it contrasts with that used by commercial banks.

Accepted Answer

This new lending facility would give inv...

Question 13

The Fed seeks to achieve its goals through a form of chain reaction. Describe the chronology and structure of this chain reaction explaining how operating and intermediate targets are used to achieve the Fed's ultimate goals?

Accepted Answer

The Fed first employs one or more of its...

Question 14

Overall during Greenspan's tenure there were two recessions, ________.

Accepted Answer

A)   during 1981 and a very mild recession during the 1987 crash.
B)   during 1991 and a very mild recession during 2001 after 9/11 terrorist attack.
C)   during the 9/11 terrorist attack and during the Internet bubble.
D)   None of these

Question 15

One historic consequence of the policy of supplying reserves according to movements in the fed funds rate was that the Fed did not concern itself ________.

Accepted Answer

A)   with the behavior of the level of reserves, or of the monetary base and other monetary aggregates, which expanded in an erratic way.
B)   with the behavior of discount rates, or of the discount window, and other interest rates, which changed in erratic ways.
C)   with the behavior of exchange rates, or of the dollar and other foreign currencies, which moved in erratic fashions.
D)   None of these

Question 16

Inflation in advanced economies is ________ the result of excessive demand due to monetary or fiscal policy.

Accepted Answer

A)   never
B)   seldom (if ever) 
C)   frequently
D)   always

Question 17

An easy money policy of expanding the money supply (that is, stimulating higher growth rates for one or more monetary aggregates)  may appear to promote ________, but it may also raise the prospect of inflation, affect the exchange rate disadvantageously, and increase interest rates.

Accepted Answer

A)   growth and low interest rates
B)   growth and high interest rates
C)   stagnation and low interest rates
D)   stagnation and high interest rates

Question 18

In some countries, a key foreign currency exchange rate may well function as an ________.

Accepted Answer

A)   intermediary target.
B)   supplementary target.
C)   operating target.
D)   operating procedure.

Question 19

Which of the below has occurred during the 21st Century?

Accepted Answer

A)   After the stock market reversed and the bubble began to burst, the Fed increased the Fed funds rate from 2% to 5% beginning in May 2000 to successfully avert a recession induced by the stock market.
B)   During June 2004, the Fed began a series of 17 consecutive 0.25% decreases in the Fed funds rate, to decrease the Fed funds rate to 5.25% during June 2006.
C)   Bernanke totally reversed Greenspan's policies being viewed as more open with respect to communication about the Fed's policy and open to promoting more open discussion.
D)   The urgency about the economy and the financial system continued to intensify and the Fed increased its funds rate between regularly scheduled FOMC meetings in January 2008.

Question 20

The Fed, in interaction with banks and other units of the economy, create ________.

Accepted Answer

A)   money and employment
B)   employment and credit
C)   money and credit
D)   employment and debt

Exam 5: Monetary Policy in the United States

During 1997/1998, with strong economic growth and unemployment decreasing, Alan Greenspan and the Fed were faced with a dilemma. What was this dilemma?

Correct AnswerverifiedShow Answer

The Fed seeks to achieve its goals through a form of chain reaction. Describe the chronology and structure of this chain reaction explaining how operating and intermediate targets are used to achieve the Fed's ultimate goals?

Correct AnswerverifiedThe Fed first employs one or more of its...View AnswerShow Answer

In the Keynesian view, the Fed's decision to reduce the fed funds rate, by increasing the banking system's excess reserves, should have consequences. Which of the below is NOT one of these consequences?

Correct AnswerverifiedShow Answer

The targets of Fed policy have changed many times in the past 25 years.

Correct AnswerverifiedShow Answer

The expansion in the monetary aggregates was particularly rapid from 1975 to 1978, and that expansion (along with the oil shocks) led to ________.

Correct AnswerverifiedShow Answer

Inflation in advanced economies is ________ the result of excessive demand due to monetary or fiscal policy.

Correct AnswerverifiedShow Answer

One historic consequence of the policy of supplying reserves according to movements in the fed funds rate was that the Fed did not concern itself ________.

Correct AnswerverifiedShow Answer

The standard way of measuring ________ is the change in a major price index.

Correct AnswerverifiedShow Answer

Policies expanding the money supply and stimulating growth are beneficial for all circumstances.

Correct AnswerverifiedShow Answer

Which of the below statements is FALSE?

Correct AnswerverifiedShow Answer

________ is a condition of both inflation and recession.

Correct AnswerverifiedShow Answer

Intermediate targets may include monetary aggregates and interest rates, but never include foreign currency exchange rates.

Correct AnswerverifiedShow Answer

An easy money policy of expanding the money supply (that is, stimulating higher growth rates for one or more monetary aggregates) may appear to promote ________, but it may also raise the prospect of inflation, affect the exchange rate disadvantageously, and increase interest rates.

Correct AnswerverifiedShow Answer

The Fed, in interaction with banks and other units of the economy, create ________.

Correct AnswerverifiedShow Answer

In some countries, a key foreign currency exchange rate may well function as an ________.

Correct AnswerverifiedShow Answer

During March 2008, the Fed introduced a new lending facility, called the Primary Dealer Credit Facility, for investment banks and securities dealers. Briefly explain the purpose of this new facility and how it contrasts with that used by commercial banks.

Correct AnswerverifiedThis new lending facility would give inv...View AnswerShow Answer

Which of the below has occurred during the 21st Century?

Correct AnswerverifiedShow Answer

Overall during Greenspan's tenure there were two recessions, ________.

Correct AnswerverifiedShow Answer

The Fed cannot, with any of its monetary tools (open market operations, discount rates, etc.) , directly influence such complex economic variables as ________.

Correct AnswerverifiedShow Answer

The Fed can be certain how much impact any change in reserves will have on short-term rates.

Correct AnswerverifiedShow Answer

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The Fed first employs one or more of its...
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This new lending facility would give inv...
View Answer

Correct Answer
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