Question 1

In the early 2000s, it was recognized that Japan had

Accepted Answer

Japan experienced a very low money multiplier during the early 2000s, which meant that increases in the monetary base did not translate into proportional increases in the money supply.

Question 2

The monetary base rises

Accepted Answer

The monetary base, also known as high-powered money, is the sum of currency in circulation and deposits held by banks at central banks. It rises whenever the Fed acquires some of the bonds sold by the federal government to finance the deficit because this process injects new money into the banking system. This is often referred to as quantitative easing or open market operations. The other choices are incorrect because they do not directly contribute to an increase in the monetary base.

Question 3

An economist argues: "The only effective guarantee of low inflation is an independent central bank." Do you agree?

Accepted Answer

The answer of An economist argues: "The only effective guarantee...

Question 4

According to the Maastricht Treaty, what is the goal of the European Central Bank?

Accepted Answer

According to the Maastricht Treaty, the main goal of the European Central Bank is to maintain price stability within the Eurozone. This means the ECB aims to keep inflation low and stable, as it is believed that this contributes to sustainable economic growth and employment. The other options mentioned (A, B, and C) are not explicitly stated as goals of the ECB in the Maastricht Treaty.

Question 5

The Maastricht Treaty has made the European Central Bank

Accepted Answer

The Maastricht Treaty created the European Central Bank (ECB) as an independent institution with a mandate to maintain price stability within the Eurozone. This means the ECB is not dependent on the preferences or decisions of individual member states, nor is it dependent on the actions of other central banks like the Fed. The ECB's independence is meant to prevent political interference in its monetary policy decision-making.

Question 6

What does the Treasury do with the tax funds withheld from workers' paychecks? How does the Treasury make use of these funds when making purchases for the federal government? How do these activities affect the monetary base?

Accepted Answer

The answer of What does the Treasury do with the...

Question 7

In early 2001, most economists were predicting that the federal government would be running budget surpluses for the next ten years. (Note: It didn't take place!) Would these surpluses have had any impact on the ability of the Fed to control the monetary base?

Accepted Answer

The answer of In early 2001, most economists were predicting...

Question 8

How would the Fed go about "pegging" the interest rate on Treasury securities, as it did during World War II? What would be the consequences of pegging the monetary base?

Accepted Answer

The answer of How would the Fed go about "pegging"...

Quiz 18: Changes in the Monetary Base