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Multiple Choice



1

All of the following would not represent the transmission of monetary policy EXCEPT:
A)Increase in the demand for SUV's due to lower gas prices..
B)Income tax rates change.
C)Firms alter their growth plans.
D)Oil prices increase
2

A tightening of monetary policy should:
A)Increase spending by households and businesses and increase net exports.
B)Raise net exports but lower spending by households and businesses.
C)Decrease spending by households and businesses as well as net exports.
D)Increase investment and household spending but lower net exports.
3

The direct impact on spending of short term interest rate changes by central banks is:
A)Definitely the strongest of all transmission mechanisms.
B)Only effective for net exports but not for investment and consumption.
C)Only effective for consumption but not investment.
D)Not that powerful.
4

The relationship between interest rates and stock prices 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.
5

The bank lending channel of monetary policy focuses on:
A)The banks' willingness and ability to lend.
B)The interest rate banks charge their largest customer.
C)How central bank policy influences the solvency of banks.
D)The deposit insurance premiums banks will end up paying.
6

For a firm that has liabilities, an decrease in interest rates increases net worth because:
A)Asset values will decrease.
B)The principal amount of the loans will decrease.
C)Profits will be higher due to lower interest costs.
D)None of the above.
7

Each of the following are not transmission channels of monetary policy EXCEPT:
A)The balance sheet channel.
B)The technology price channel.
C)The efficient market channel.
D)The tax impact channel.
8

The dramatic rise of inflation in the 1970s was at least partly due to the fact that:
A)The Fed wanted high rates of inflation because output was growing rapidly.
B)The Fed was slow to identify decreases in potential output.
C)The Fed's tight money policy of the 1970s.
D)Potential output rose dramatically during the 1970s.
9

When it comes to economic forecasting:
A)The Fed is superior to the private sector in producing accurate economic forecasts.
B)The Fed has a very poor record of producing accurate forecasts.
C)The private sector produces more accurate forecasts than the Fed since they are driven by profits.
D)The Fed and the private sector do about an equally poor job at economic forecasting.
10

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.
11

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.
12

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.
E)c and d
13

When equity and property prices rise (bust), bank balance sheets are improved because:
A)The collateral that is backing many of the loans they have made is now worth more.
B)Banks own a lot of property outright.
C)Banks hold a lot of corporate stocks.
D)b and c.
14

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.
15

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.





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