Question 1

The make-up of the Governing Council of the European Central Bank and the methods used to calculate price stability for the monetary system can potentially result in:

Accepted Answer

All the listed results are possible with the current make-up of the Governing Council and methods used to calculate price stability for the monetary system. The diversity of economies and interests within the eurozone can potentially result in small countries having undue influence, monetary policies being well-suited for some countries but not others, and a policy that may cater to the median country rather than being an optimal fit for any particular country.

Question 2

Based on the membership of the Eurosystem in 2017, the median country is likely to be:

Accepted Answer

The Eurosystem includes 19 countries, ranging from large economies such as Germany and France, to small economies such as Malta and Cyprus. The median country would be one that falls roughly in the middle based on population and GDP, indicating a fairly small economy.

Question 3

In the meetings of the Governing Council of the European Central Bank, formal votes are:

Accepted Answer

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Question 4

Why is it technically incorrect to say that the board of directors of the regional Fed banks set the discount rate that each bank charges?

Accepted Answer

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Question 5

What are the three branches that make up the Federal Reserve System?

Accepted Answer

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Question 6

How are the locations of the twelve regional Federal Reserve Banks and the corresponding districts explained?

Accepted Answer

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Question 7

Why are so few state chartered banks members of the Federal Reserve System?

Accepted Answer

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Question 8

Why can't two Governors of the Fed come from the same district and does this limitation make sense today?

Accepted Answer

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Question 9

Sweden is:

Accepted Answer

Sweden is a member of the European Union but has not adopted the euro as its currency, thus it is not a member of the Euro system.

Question 10

Why did it take almost 150 years before the U.S. had a permanent central bank?

Accepted Answer

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Question 11

The European Central Bank has ensured independence by appointing Executive Board members for:

Accepted Answer

According to the European Central Bank's statute, Executive Board members are appointed for non-renewable terms of eight years to ensure their independence.

Question 12

As of 2017, the euro had become the currency for:

Accepted Answer

As of 2017, the euro has become the currency for 19 countries.

Question 13

France, Germany, and Italy are:

Accepted Answer

France, Germany, and Italy are all members of the European Union and have adopted the Euro as their currency.

Question 14

Who makes up the voting members of the Federal Reserve's Open Market Committee?

Accepted Answer

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Question 15

The European Central Bank has ensured independence by:

Accepted Answer

The explicit forbidding of the Governing Council from taking instructions from any government is the key factor in ensuring the independence of the ECB. The other options are not relevant or can actually undermine its independence.

Question 16

The Federal Reserve is the U.S. government's bank. Identify the functions the Fed performs in this role.

Accepted Answer

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Question 17

The ECB's Governing Council has price stability as a primary objective. It has defined price stability as:

Accepted Answer

The ECB's Governing Council has defined price stability as an inflation rate below, but close to, 2 percent over the medium term. This means that the target inflation rate is not zero, nor does it allow for inflation rates greater than 5 percent or in the three to five percent range. Therefore, the best choice is C.

Question 18

In what ways do the regional Federal Reserve Banks influence monetary policy?

Accepted Answer

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Question 19

The method used by the ECB to measure inflation for meeting its objectives:

Accepted Answer

The ECB's method for measuring inflation is based on the Harmonized Index of Consumer Prices (HICP), which gives equal weight to each member country. This means that inflation in smaller countries has a relatively greater impact on the overall inflation rate for the eurozone. However, this method can result in a contractionary monetary policy being used in a country where inflation is already very low, which can harm its economic growth.

Question 20

If it is the real rate of interest that savers and borrowers respond to, how does the Fed impact a real rate by targeting a nominal rate of interest?

Accepted Answer

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Quiz 16: The Structure of Central Banks: The Federal Reserve and the European Central Bank