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MGT411 Money and Banking MCQs

MGT411 Money, Banking and Financial Markets Solved MCQs 30

Q#1 A central bank typically:
A) has a monopoly in issuing currency.
B) use monetary policy in attempts to stabilize economic growth and/or inflation.
C) serves as a "bankers' bank" that provides services to other banks.
D) All of the above are correct.
The Basics: How Central Banks Originated and Their Role Today.

Q#2 The primary reason for the existence of central banks today is to:
A) help finance wars.
B) serve as a bank for the government, accepting deposits and providing the government with checkable deposits.
C) control the money supply.
D) stabilize the prices of specific commodities.
The Basics: How Central Banks Originated and Their Role Today.

Q#3 Monetary policy in the countries that are part of the European Monetary Union is controlled by the:
A) European Central Bank.
B) central banks of each of the member countries.
C) Federal Reserve Board.
D) Bank ofEngland.
The Basics: How Central Banks Originated and Their Role Today.

Q#4 Which of the following tasks is NOT performed by a central bank as part of its role as a "bankers' bank?"
A) providing loans to banks during periods of financial stress
B) managing the payments system
C) controlling stock prices
D) accepting deposits from banks

Q#5 Central banks can serve as a lender of last resort because:
A) they have the ability to create money.
B) they are the only financial institution that is legally allowed to make loans during a financial panic.
C) the interest rates they charge are so high that banks are virtually never willing to borrow from the Fed.
D) banks are more likely to borrow money from their depositors during a financial panic.
The Basics: How Central Banks Originated and Their Role Today.

Q#6 Fedwire:
A) is a financial news network developed by the Federal Reserve Board.
B) is used for interbank transfers.
C) was once heavily used by banks, but is rarely used today since there is little need for interbank transfers now that the internet exists.
D) is used by the Fed solely to make loans to member banks.
The Basics: How Central Banks Originated and Their Role Today.

Q#7 Historical evidence indicates that theU.S. financial system is:
A) always very stable as long as the government does not imposed any regulations.
B) prone to periods of instability that have imposed substantial costs on society.
C) somewhat unstable, but this does not matter much since the social cost of the instability is always low.
D) as unstable today as it was in the late 1800s.
Stability: The Primary Objective of All Central Banks.

Q#8 One of the main objectives of a central bank is to:
A) reduce idiosyncratic risk in financial markets.
B) reduce systematic risk in financial markets.
C) encourage a low and stable rate of economic growth.
D) achieve a high and stable inflation rate.
Stability: The Primary Objective of All Central Banks.

Q#9 Central banks generally place a great deal of emphasis on maintaining a low and stable inflation rate because:
A) inflation lowers the information content of prices.
B) economic growth tends to decline as inflation rates rise.
C) inflation tends to be less predictable when inflation rates rise.
D) All of the above are correct.

Q#10 Central banks usually establish a positive inflation rate target rather than a zero inflation rate target because:
A) economic growth is higher when the inflation rate rises.
B) a positive inflation rate makes it possible for firms to reduce real wages without reducing nominal wages, leading to more efficient labor markets.
C) the Fed is a more profitable operation for the government when the inflation rate is positive.
D) a higher inflation rate results in a higher unemployment rate, and higher unemployment rates are preferred by policymakers.
Stability: The Primary Objective of All Central Banks.

Q#11 Which of the following is not a primary objective of the Fed?
A) low and stable inflation
B) high and stable real growth
C) financial system stability
D) maintaining low interest rates

Q#12 Exchange–rate stability is:
A) a more important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
B) a less important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
C) equally important as a goal for the Fed as it is for the central banks of smaller and more trade-oriented economies.
D) a primary objective of the Fed.

Q#13 Which of the following is not generally a characteristic of a successful central bank?
A) Central bank policy must be controlled by the same authorities.
B) Central bank decisions must be made in private and policy should not be publicly announced.
C) Decision making should be made by an individual, not a committee, to ensure consistency of goals.
D) The central bank should operate within a framework in which it has clear goals.

Q#14 Central bank independence is:
A) not very common in industrialized countries today.
B) a practice that was widely adopted by central banks for industrialized countries in the late 1800s.
C) a relatively recent historical phenomenon.
D) a policy that is practiced by the European Central Bank, but not the Fed.

Q#15 Empirical evidence suggests that a higher level of central bank independence results in:
A) higher average inflation rates than occur in countries with less independent central banks.
B) lower average inflation rates than occur in countries with less independent central banks.
C) the same average inflation rates that occur in countries with less independent central banks.
D) lower rates of economic growth than occurs in countries with less independent central banks.

Q#16 A source of conflict between monetary and fiscal policy decision makers is that:
A) fiscal policy decision makers place more emphasis on short-term objectives while monetary policy makers focus on long-term objectives.
B) it is easier, from a political standpoint, to pay for increased government spending by a monetary expansion than by raising taxes.
C) Both of the above are correct.
D) None of the above is correct.


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MGT411 MCQs from Money, Banking and Financial Markets 29

MGT411 MCQs from Money, Banking and Financial 

 

Q#1
The central bank in theUnited States is:

 

                         A) the Bank ofAmerica.

 

                         B) theU.S. Treasury.

                        

                         C) the Federal Reserve.

 

                         D) the Bank of TheUnited States.

                                                            

Feedback:

LOD: 1
The Basics: How Central Banks Originated and Their Role Today.

 

Q#2
Many governments give their central bank control over issuing currency because:

 

                         A) the only way to distribute currency to banks is through the central bank.

 

                         B) having large amounts of currency can lead to lower rates of inflation.

 

                         C) central banks use the profits from issuing currency to finance their operations.

                        

                         D) printing currency can be profitable for a government, so government officials may have a strong incentive to print too much.

                                                            

Feedback:

LOD: 1
The Basics: How Central Banks Originated and Their Role Today.

 

Q#3
Monetary policy in theUnited States is under the control of the:

                        

                         A) Federal Reserve.

 

                         B) President.

 

                         C)U. S. Treasury.

 

                         D)U.S. Senate.

                                                            

Feedback:

LOD: 1
The Basics: How Central Banks Originated and Their Role Today.

 

Q#4
Central banksperform each of the following EXCEPT:

 

                         A) issuing currency.

 

                         B) serving as the government's bank.

 

                         C) controlling the availability of money and credit.

                        

                         D) managing fiscal policy.

                                                            

Feedback:

LOD: 3
The Basics: How Central Banks Originated and Their Role Today.

Q#5                
A central bank typically:

 

                         A) facilitates interbank payments.

 

                         B) controls the money supply.

 

                         C) has a monopoly in printing currency.

                        

                         D) All of the above are correct.

                        

                                                            

Feedback:

LOD: 1
The Basics: How Central Banks Originated and Their Role Today.

Q#6
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 imports.

 

                         D) low and stable unemployment rates.

                                                            

Feedback:

LOD: 1
Stability: The Primary Objective of All Central Banks.

 

Q#7
If prices are not stable:

 

                         A) money performs better as a unit of account.

                        

                         B) money becomes less useful as a store of value.

 

                         C) it may be an inconvenience, but resources are still allocated efficiently.

 

                         D) None above given

                                                            

Feedback:

LOD: 2
Stability: The Primary Objective of All Central Banks.

 

Q#8
Low and stable inflation implies:

 

                         A) that the rate of inflation averaged over many years is zero (0).

 

                         B) low rates of economic growth.

                        

                         C) that the rate of inflation year after year is low.

 

                         D) low rates of unemployment.

                                                            

Feedback:

LOD: 2
Stability: The Primary Objective of All Central Banks.

 

Q#9
Everything else equal, if the growth rate of a country exceeds its sustainable rate, then the central bank:

 

                         A) will keep interest rates low to keep the momentum.

                        

                         B) is likely to raise interest rates to slow the rate of growth.

 

                         C) will now identify this new rate as the sustainable rate and try to maintain it.

 

                         D) is likely to lower the interest rate thinking a slowdown is coming to offset this boom.

                                                            

Feedback:

LOD: 2
Stability: The Primary Objective of All Central Banks.

 

Q#10
The Fed and other central banks often have a positive, rather than a zero, inflation rate target because:

 

                         A) a zero inflation rate target introduces a risk of deflation.

 

                         B) economic growth is higher when inflation is higher.

 

                         C) politicians prefer having a higher inflation rate because this raises incomes and purchasing power for everyone.

 

                         D) None of the above is correct.

                                                            

Q#11
Successful monetary policy relies on:

 

                         A) luck.

 

                         B) the institutional environment.

 

                         C) competent people in responsible positions.

 

                         D) knowledgeable citizens who know how to react to the policy.

                        

                         E) b and c

                                                            

Feedback:

LOD: 2
Meeting the Challenge: Creating a Successful Central Bank.

 

Q#12
The idea that central banks should be independent of political pressure is an idea that:

 

                         A) the Federal Reserve Act included in 1913.

                        

                         B) is relatively new.

 

                         C) every central bank was founded upon.

 

                         D) became quite popular in the early 1900s.

                        

                                                            

Feedback:

LOD: 1
Meeting the Challenge: Creating a Successful Central Bank.

 

Q#13
The operational components required for truly independent central banks include:

                        

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

 

                         B) the ability to have policies reversed.

 

                         C) a budget controlled by Congress.

                        

                         D) the chairperson of the bank being answerable only to the president.

 

                                                            

Feedback:

LOD: 2
Meeting the Challenge: Creating a Successful Central Bank.

 

Q#14
One argument for an independent central bank is:

 

                         A) without independence, competent people would not take a position in a central bank.

                        

                         B) successful monetary policy requires a long time horizon; one that is usually well beyond the next election of most public officials.

 

                         C) politicians have a long-run focus that is not well tuned to addressing economic problems.

 

                         D) central bankers have a short-run focus that usually corrects problems faster.

                                                            

Feedback:

LOD: 2
Meeting the Challenge: Creating a Successful Central Bank.

 

Q#15
The means for assuring accountability and transparency:

 

                         A) are the same for all successful central banks.

                        

                         B) are different across the central banks of most countries.

 

                         C) involve setting specific numerical targets so there is no confusion as to what the goal is.

 

                         D) All of the above.

                        

                                                            

Feedback:

LOD: 1
Meeting the Challenge: Creating a Successful Central Bank.

 

Q#16
One reason given for more central bankers releasing their decisions publicly is:

                         A) to let the public debate the appropriateness of monetary policy decisions. 

                         B) most people do not understand monetary policy, so it really doesn't do any harm to release the decisions publicly.                        

                         C) that for monetary policy to be stabilizing, speculation about central bankers decisions should be minimized. 

                         D) so that central banks across the world can coordinate their policies.

 

                        

                         A) monetary and fiscal policy often times conflict. 

                         B) fiscal and monetary policy never conflict. 

                         C) monetary policy ultimately controls fiscal policy since the Fed controls the money supply. 

                         D) fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

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