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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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Views: 16

Replies to This Discussion

Q#11
The portfolio demand for money reflects:

 

                      A)    the money we hold for our everyday transactions.

 

                      B)    the money we hold to purchase stocks and bonds and other financial securities.

                     

                      C)the portion of wealth people desire to hold in the form of money.

 

                      D)   b and c

                                                        

Feedback:

LOD: 2
The Demand for Money.

 

Q#12
The Lucas critique focuses specifically on:

                     

                      A)the role that economic policymaking has on people's economic behavior.

 

                      B)    the relationship between Fed policy and the money supply.

 

                      C)    the inability to measure economic time lags accurately.

 

                      D)   the moving away from the gold standard to flexible exchange rates.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

 

Q#13
To use money growth as a short-term monetary policy instrument, a central bank must:

 

                      A)    believe the deposit expansion multiplier is volatile and unpredictable.

 

                      B)    believe that only money matters.

 

                      C)    believe that there is an unpredictable relationship between money aggregates and inflation.

                     

                      D)believe there is some stable link between the monetary base and the money aggregates.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

 

Q#14
One cost that potentially could result from central banks targeting money growth is:

                     

                      A)volatile interest rates.

 

                      B)    a slowdown in financial innovation.

 

                      C)    high inflation.

 

                      D)   a very stable interest rate.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

 

Q#15
If a central bank set an explicit inflation target it would require that it:

 

                      A)    put more emphasis on the interest rate target and less on a money target.

 

                      B)    shift its focus entirely to a nominal interest rate target.

                     

                      C)be willing to live with more volatility in the interest rate.

 

                      D)   give up control of targeting the monetary base.

                                                        

Feedback:

LOD: 3
Targeting Money Growth in a Low-Inflation Environment.

Quiz # 40

 

Q#1
The single most important fact in monetary economics is the:

                     

                      A)positive relationship between money growth and inflation rates.

 

                      B)positive relationship between money growth and the real interest rate.

 

                      C)    negative relationship between money growth and the real interest rate.

 

                      D)   negative relationship between money growth and inflation rates.

                                                        

Feedback:

LOD: 1
Why We Care About Monetary Aggregates.

 

Q#2
When a country has a high inflation rate:

 

                      A)    people tend to spend money more quickly, which helps to reduce inflation.

                     

                      B)people tend to spend money more quickly, which has the same effect on inflation as an increase in money growth.

 

                      C)    people tend to spend money more slowly, which has the same effect on inflation as an increase in money growth.

 

                      D)   there is also typically a high unemployment rate.

                                                        

Feedback:

LOD: 2
Why We Care About Monetary Aggregates.

 

Q#3
Inflation can be thought of as:

                     

                      A)a decrease in the value of money.

 

                      B)    an increase in the value of money.

 

                      C)    no change in the value of money, just in the supply of money.

 

                      D)   no change in the value of money, just in the demand for money.

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#4
If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following represents nominal GDP?

 

                      A)    (P·Y) +M

 

                      B)    (P·M)/Y

 

                      C)    (Y·M)/P

                     

                      D)(P·Y)

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#5
If the equation of exchange is MV=PY and we assume that velocity is constant and that real output is determined solely by economic resources and production technology, then a change in M will result in a change in:

                     

                      A)P.

 

                      B)    Y.

 

                      C)    PV.

 

                      D)   VY.

                                                        

Feedback:

LOD: 1
The Quantity Theory and the Velocity of Money.

 

Q#6
Which of the following is not a key assumption behind the quantity theory of money?

                     

                      A)The change in nominal GDP is zero.

 

                      B)    The percentage change in the price level equals the percentage change in the money supply.

 

                      C)    The velocity of money is constant.

 

                      D)   Real growth is determined by resources and technology.

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#7
If we let Md represent money demand and the money market is in equilibrium, then:

 

                      A)    M=VY.

 

                      B)    M= V(PY).

                     

                      C)MV =PY.

 

                      D)   M= V(Y/P).

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#8
A central bank policy to stabilize inflation by keeping money growth constant would be viable only if:

 

                      A)    the velocity of money was decreasing over time.

 

                      B)    the velocity of money was increasing over time.

                     

                      C)velocity of money was constant.

 

                      D)   nominal GDP were constant.

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#9
Increases in velocity in the late 1970s and early 1980s can be attributed to financial innovations that:

 

                      A)    made holding money very costly.

 

                      B)    allowed individuals to economize on the amount of money they held.

                     

                      C)Both of the above are correct.

 

                      D)   None of the above is correct.

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

 

Q#10
As the monetary policy strategy of the European Central Bank has evolved over time, the role of money:

 

                      A)    has become more prominent.

                     

                      B)has become less prominent.

 

                      C)    has not changed.

 

                      D)   has changed in that there is more emphasis on the equivalent of M1 than M2.

                                                        

Feedback:

LOD: 2
The Quantity Theory and the Velocity of Money.

Q#11
The higher the nominal interest rate:

 

                      A)    the higher the opportunity cost of holding money.

 

                      B)    the less money people will hold for any given level of transactions.

 

                      C)    the higher the velocity of money.

                     

                      D)All of the above are correct.

                                                        

Feedback:

LOD: 2
The Demand for Money.

 

Q#12
The precautionary demand for money is usually included in the:

                     

                      A)transactions demand for money.

 

                      B)    portfolio demand for money.

 

                      C)    both the transactions demand and the portfolio demand for money.

 

                      D)   None of the above; it is a separate category.

                                                        

Feedback:

LOD: 2
The Demand for Money.

 

Q#13
Controlling inflation:

 

                      A)    is made more difficult in a high-inflation environment due to changes in velocity.

                     

                      B)is made more difficult in a low-inflation environment due to changes in velocity.

 

                      C)    depends more on the resolve of the central bank in a low-inflation environment.

 

                      D)   is simpler in the short run because velocity is constant.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

Q#14
Changes in mortgage refinancing rates have affected the velocity of M2 because:

 

                      A)    people who are refinancing take out equity in their home and deposit funds in liquid deposit accounts.

 

                      B)    as mortgages are refinanced flows of funds from holders of both old and new mortgages flow through accounts that are part of M2.

                     

                      C)Both of the above are correct.

 

                      D)   None of the above is correct.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

 

Q#15
Comparing the ECB and the Fed, it is accurate to say that:

 

                      A)    the ECB puts more emphasis on the interest rate target and less on a money target.

                     

                      B)the ECB and the Fed differ in their emphasis on money growth but both use interest rates as their operating targets.

 

                      C)    the ECB only uses a money growth target while the Fed only uses an interest rate target.

 

                      D)   None of the above is correct.

                                                        

Feedback:

LOD: 2
Targeting Money Growth in a Low-Inflation Environment.

Q#11
During the 1990s:

 

                      A)    the U.S. economy never suffered a single decline in output.

 

                      B)    inflation fell steadily.

 

                      C)    there was less volatility in the economy.

                     

                      D)All of the above are correct.

                                                        

Feedback:

LOD: 1
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#12
If potential output changes:

 

                      A)    in the long run inflation must fall.

 

                      B)    in the long run inflation must rise.

 

                      C)    in the long run inflation will not change from its previous level.

                     

                      D)in the long run what happens to inflation depends on the actions of monetary policymakers.

                                                        

Feedback:

LOD: 1
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#13
If potential output increases and monetary policy makers respond by shifting the monetary policy reaction curve to the left, then in the long run:

                     

                      A)inflation will move to a new, lower target level.

 

                      B)    inflation will return to the previous target level.

 

                      C)      inflation will increase because the decline in the long-run real interest rate will shift the dynamic aggregate demand curve to the right.

 

                      D)   inflation will increase because the decline in the long-run real interest rate will shift the dynamic aggregate demand curve to the left.

                                                        

Feedback:

LOD: 3
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#14
Real-business-cycle theory seeks to explain business cycle fluctuations by focusing on:

 

                      A)    real aggregate demand.

 

                      B)    the inflexibility of prices and wages.

                     

                      C)fluctuations in potential output

 

                      D)   changes in monetary policy.

                                                        

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#15
If a drop in potential output occurs, and monetary policymakers wish to keep inflation at the target level, then they must:

                     

                      A)shift the monetary policy reaction curve to the left more than they would if the economy were just experiencing a recessionary gap.

 

                      B)    shift the monetary policy reaction curve to the left less than they would if the economy were just experiencing a recessionary gap.

 

                      C)      shift the monetary policy reaction curve to the right more than they would if the economy were just experiencing a recessionary gap.

 

                      D)      shift the monetary policy reaction curve to the right less than they would if the economy were just experiencing a recessionary gap.

                                                        

Feedback:

LOD: 3
Using the Aggregate Demand-Aggregate Supply Framework

Quiz # 44

 

Q#1
Considering business cycles over the last fifty years in U.S. history, one would say that:

                                 A)       the lower the growth, the more likely inflation is to fall.

                                     B)       the lower the growth, the less likely inflation is to fall.

                                     C)       the higher the growth, the more likely inflation is to fall.

                                     D)       inflation does not change as much with growth as it used to.

                                        

Feedback:

LOD: 1
Understanding Business Cycle Fluctuations.

 

Q#2
Which of the following is correct?

                                     A)       A decrease in the price of oil would be a supply shock.

                                     B)       A decrease in consumer confidence would be a demand shock.

                                     C)       Shocks can cause shifts in either the demand or supply curve.

                                 D)       All of the above are correct.

                                                          

Feedback:

LOD: 1
Sources of Fluctuations in Output and Inflation.

 

Q#3
If the central bank increases its inflation target:

                                 A)       the monetary policy reaction curve will shift to the right.

                                     B)       the monetary policy reaction curve will shift to the left.

                                     C)       there will be a movement up along the monetary policy reaction curve.

                                     D)       there will be a movement down along the monetary policy reaction curve.

                                                          

Feedback:

LOD: 2
Sources of Fluctuations in Output and Inflation.

 

Q#4
If government purchases decrease and as a result push current output above potential output, monetary policymakers are likely to:

                                     A)       raise the real interest rate.

                                 B)       lower the real interest rate.

                                     C)       keep the real interest rate constant and focus on only changing the nominal interest rate.

                                     D)       purchase Treasury securities.

                                                          

Feedback:

LOD: 2
Sources of Fluctuations in Output and Inflation.

 

Q#5
Suppose that an increase in consumer confidence shifts the dynamic aggregate demand curve to the right. Which of the following is correct?

                                     A)       In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the right.

                                 B)       In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the left.

                                     C)       If monetary policymakers react, the dynamic aggregate demand curve will shift farther to the right.

                                     D)       Even without a monetary policy response, the dynamic aggregate demand curve will shift back to the left.

                                                          

Feedback:

LOD: 3
Sources of Fluctuations in Output and Inflation.

 

Q#6
Stagflation is associated with:

                                 A)       higher inflation and lower growth.

                                     B)       higher inflation and higher growth.

                                     C)       lower inflation and lower growth.

                                     D)       lower inflation and lower growth.

                                                          

Feedback:

LOD: 2
Sources of Fluctuations in Output and Inflation.

 

Q#7
Which of the following statements is incorrect?

                                     A)       Monetary policymakers find it more difficult to deal with the effects of a supply shock.

                                 B)       Monetary policymakers can shift the long-run aggregate supply curve.

                                     C)       Monetary policymakers can neutralize movements in aggregate demand.

                                     D)       Shifts in the monetary policy reaction function shift the dynamic aggregate demand curve.

                                                          

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#8
A decrease in consumer confidence would like result in fiscal policymakers:

                                 A)       cutting taxes or increasing spending.

                                     B)       shifting the monetary policy reaction curve left.

                                     C)       shifting the monetary policy reaction curve right.

                                     D)       raising taxes or decreasing spending.

                                                          

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#9
A decrease in taxes would likely occur in response to some shock that:

                                 A)       caused the dynamic aggregate demand curve to shift to the left.

                                     B)       caused a movement down and along the existing dynamic aggregate demand curve.

                                     C)       caused a movement up and along the existing dynamic aggregate demand curve.

                                     D)       caused the dynamic aggregate demand curve to shift to the right.

                                                          

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#10
To take advantage of the opportunity provided by positive supply shocks, monetary policymakers should act to:

                                     A)       flatten the slope of the monetary policy reaction curve.

                                 B)       shift the monetary policy reaction curve left.

                                     C)       raise the potential level of output.

                                     D)       make the slope of the monetary policy reaction curve steeper.

                                                          

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

Q#11
The "great moderation" of the 1990s has been attributed to:

                                     A)       luck.

                                     B)       the increased ability of economies to absorb external economic disturbances.

                                     C)       more effective monetary policy.

                                 D)       All of the above.

                                                          

Feedback:

LOD: 1
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#12
In the long run an increase in potential output will mean that:

                                     A)       in the long run inflation must fall.

                                     B)       in the long run inflation must rise.

                                     C)       in the long run inflation will not change from its previous level.

                                 D)       None of the above; what happens to inflation in the long run depends on the actions of monetary policymakers.

                                                          

Feedback:

LOD: 1
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#13
For "opportunistic disinflation" to occur:

                                 A)       potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the left.

                                     B)       potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the right.

                                     C)       potential output must increase and monetary policy makers must respond by shifting the dynamic aggregate demand curve to the right.

                                     D)       None of the above is correct.

                                                          

Feedback:

LOD: 3
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#14
Which of the following is true about real-business-cycle theory?

                                     A)       According to the theory, the short-run aggregate supply curve shifts slowly in response to deviations of current output from potential output.

                                     B)       It assumes the inflexibility of prices and wages.

                                     C)       According to the theory, any shift in the dynamic aggregate demand curve results in fluctuations in potential output with no effect on inflation.

                                 D)       None of the above is correct.

                                                          

Feedback:

LOD: 2
Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#15
Which of the following represents a correct action by monetary policy makers?

                                 A)       A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the left.

                                     B)       A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the right.

                                     C)       A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the right.

                                     D)       A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the left.

                                                          

Feedback:

LOD: 3
Using the Aggregate Demand-Aggregate Supply Framework

Q#11
If the short-run and long-run aggregate supply curves shift to the right, the appropriate response by monetary policymakers would be to:

                                     A)       shift the monetary policy reaction function to the left.

                                 B)       shift the monetary policy reaction function to the right.

                                     C)       steepen the monetary policy reaction function.

                                     D)       flatten the monetary policy reaction function.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

 

Q#12
Bonds must have positive yields because:

                                     A)       the U.S. Treasury guarantees all bonds to have a positive yield.

                                 B)       people can always hold cash.

                                     C)       the banking technology does not exist to deal with negative yields.

                                     D)       All of the above.

                                                          

Feedback:

LOD: 1
The Challenges Modern Monetary Policymakers Face.

 

Q#13
A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

                                     A)       set a target of zero inflation.

                                     B)       set an inflation target well above 5 percent.

                                     C)       target a nominal interest rate of zero.

                                 D)       set an inflation target of two to three percent.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

 

Q#14
If the target federal funds rate reaches zero:

                                     A)       the FOMC must stop purchasing securities since they cannot lower nominal rates below zero.

                                 B)       the FOMC would likely shift their focus to purchasing longer term securities.

                                     C)       the FOMC would likely raise the required reserve rate.

                                     D)       the FOMC would likely raise the discount rate.

                                                          

Feedback:

LOD: 3
The Challenges Modern Monetary Policymakers Face.

 

Q#15
Some people who believe monetary policymakers should not address equity and property price bubbles, argue their position based on:

                                 A)       price bubbles are virtually impossible to identify when they are developing.

                                     B)       the policymakers have a history for poor investing decisions.

                                     C)       their belief that government should stay out of private matters.

                                     D)       All of the above.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

 

Q#16
The movement away from bank lending towards asset-backed securities:

                                     A)       has decreased the importance of the bank lending channel.

                                     B)       has eliminated the bank lending channel as a mechanism for monetary policy.

                                     C)       has increased the importance of the bank lending channel of monetary policy.

                                     D)       will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.

                                 E)       a and d.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face

 

Quiz # 46

 

Q#1
The monetary policy transmission mechanism begins with:

                                 A)       changes to the central bank's balance sheet.

                                     B)       changes in household spending decisions.

                                     C)       changes in exchange rates.

                                     D)       movements in stock and bond prices.

                                                          

Feedback:

LOD: 1
The Monetary Policy Transmission Mechanism.

 

Q#2
A decrease in short-term interest rates should:

                                     A)       decrease spending by households and businesses and increase net exports.

                                     B)       lower net exports but raise spending by households and businesses.

                                 C)       increase spending by households and businesses as well as net exports.

                                     D)       increase investment and household spending but lower net exports.

                                                          

Feedback:

LOD: 2
The Monetary Policy Transmission Mechanism.

 

Q#3
The impact of monetary policy on the exchange rate and net exports is:

                                     A)       predictable for the exchange rate but not for net exports.

                                     B)       predictable for both the exchange rate and net exports.

                                     C)       unpredictable for the exchange rate but predictable for net exports.

                                 D)       unpredictable for both the exchange rate and net exports.

                                                          

Feedback:

LOD: 2
The Monetary Policy Transmission Mechanism.

 

Q#4
A fall in the interest rate tends to push up stock prices. This is referred to as:

                                     A)       the Dow Jones mechanism of monetary policy.

                                 B)       the asset-price channel of monetary policy.

                                     C)       the wealth-creating mechanism of monetary policy.

                                     D)       the investment-spending mechanism of monetary policy.

                                                          

Feedback:

LOD: 2
The Monetary Policy Transmission Mechanism.

 

Q#5
A change in monetary policy results in small businesses more easily finding funding for their projects. This represents the _______ channel of monetary policy transmission.

                                 A)       bank-lending

                                     B)       asset-price

                                     C)       balance-sheet

                                     D)       interest-rate

                                                          

Feedback:

LOD: 2
The Monetary Policy Transmission Mechanism.

 

 

Q#6
Lower interest due to a change in monetary policy results in an increase in household net worth. This represents the _______ channel of monetary policy transmission.

                                     A)       bank-lending

                                     B)       asset-price

                                 C)       balance-sheet

                                     D)       interest-rate

                                                          

Feedback:

LOD: 2
The Monetary Policy Transmission Mechanism.

 

Q#7
Which of the following is a not a transmission channel of monetary policy?

                                     A)       bank-lending

                                     B)       asset-price

                                     C)       interest-rate

                                 D)       the tax-impact channel

                                                          

Feedback:

LOD: 1
The Monetary Policy Transmission Mechanism.

 

Q#8
An economist argues that if the Fed raises rates the prices of houses will fall. This refers to the _____ channel of monetary policy transmission.

                                     A)       the balance-sheet channel

                                 B)       the asset-price channel

                                     C)       the efficient-market channel

                                     D)       the tax-impact channel

                                                          

Feedback:

LOD: 1
The Monetary Policy Transmission Mechanism.

 

Q#9
Which of the following is considered a "traditional" channel of monetary policy transmission?

                                     A)       the balance-sheet channel

                                     B)       the asset-price channel

                                     C)       the efficient-market channel

                                 D)       the interest-rate channel

                                                          

Feedback:

LOD: 1
The Monetary Policy Transmission Mechanism.

 

Q#10
If the dynamic aggregate demand curve shifts to the left, and potential output has not changed, the appropriate response by monetary policymakers would be to:

                                     A)       shift the monetary policy reaction function to the left.

                                 B)       shift the monetary policy reaction function to the right.

                                     C)       steepen the monetary policy reaction function.

                                     D)       flatten the monetary policy reaction function.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

Q#11
Suppose output unexpectedly increases. Which of the following would be a correct policy response?

                                 A)       If the increase is the result of an increase in demand with no increase in potential output, then monetary policymakers should shift the monetary policy reaction function to the left.

                                     B)       If the increase is the result of an increase in demand with no increase in potential output, then monetary policymakers should shift the monetary policy reaction function to the right.

                                     C)       If the increase is the result of rightward shifts in the short-run and long-run aggregate supply curve, then monetary policymakers should shift the monetary policy reaction function to the left.

                                     D)       If the increase is the result of leftward shifts in the short-run and long-run aggregate supply curve, then monetary policymakers should shift the monetary policy reaction function to the right.

                                                          

Feedback:

LOD: 3
The Challenges Modern Monetary Policymakers Face.

 

Q#12
Nominal interest rates cannot fall below:

                                 A)       zero.

                                     B)       real interest rates.

                                     C)       2%.

                                     D)       None of the above is correct.

                                                          

Feedback:

LOD: 1
The Challenges Modern Monetary Policymakers Face.

 

Q#13
Deflation:

                                     A)       is good for the economy because it makes it easier for businesses to obtain financing.

                                 B)       is only a problem if policymakers cannot bring output back up to its potential level.

                                     C)       causes increases in nominal interest rates.

                                     D)       fosters economic growth.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

 

Q#14
Preventing equity and property price bubbles:

                                 A)       is difficult for the Fed because such bubbles are virtually impossible to identify when they are developing.

                                     B)       is a major goal of the Fed.

                                     C)       is one of the simpler tasks the Fed perform in conducting monetary policy.

                                     D)       is the responsibility of fiscal policymakers.

                                                          

Feedback:

LOD: 2
The Challenges Modern Monetary Policymakers Face.

 

Q#15
Which of the following channels of monetary policy transmission is likely to become less and less important due to changes in the structure of the financial system?

                                     A)       the balance-sheet channel

                                     B)       the asset-price channel

                                 C)       the bank-lending channel

                                     D)       the interest-rate channel

                                                          

Feedback:

LOD: 1
The Challenges Modern Monetary Policymakers Face

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