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Quiz 2
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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.
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.
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.
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.
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
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
7
Which of the following is a not a transmission channel of monetary policy?
A)bank-lending
B)asset-price
C)balance-sheet
D)interest-rate
E)the tax-impact channel
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
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
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.
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.
12
Nominal interest rates cannot fall below:
A)zero.
B)real interest rates.
C)2%.
D)None of the above is correct.
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.
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.
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





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