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| 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. |
| | E) | None of the above is correct. |
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| 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. |
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| 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 of England. |
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| 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 |
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| 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. |
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| 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. |
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| 7 | |
Historical evidence indicates that the U.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. |
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| 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. |
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| 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. |
| | E) | None of the above is correct. |
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| 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. |
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| 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 |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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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