Question 1

The central banks of monetary unions face the risk that the poor financial condition of some of their members may cause the collapse of their currency.

Accepted Answer

If the financial condition of some of the members of a monetary union becomes too poor, it can lead to a loss of confidence in the currency as a whole and potentially cause a collapse. This has been seen in the eurozone with the sovereign debt crisis in some member countries leading to concerns about the survival of the euro.

Question 2

In response to the financial crisis,the Fed's balance sheet allocation changed from one consisting of about 90% in safe Treasury securities to one with nearly half in riskier assets such as mortgage-backed securities.

Accepted Answer

This statement is true. During the financial crisis, the Federal Reserve implemented policies such as quantitative easing, which led to an increase in the purchase of riskier assets such as mortgage-backed securities. As a result, the Fed's balance sheet allocation shifted from mostly consisting of safe Treasury securities to a mix of both safe and riskier assets.

Question 3

Some analysts blame the last economic crisis on Fed policy.They argue that the Fed did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act.

Accepted Answer

The Federal Reserve Act does not specifically require the Fed to regulate mortgage market credit standards; its primary role is to influence monetary policy, not directly regulate mortgage lending practices.

Question 4

What would the Federal Reserve likely do to combat unemployment?

Accepted Answer

The answer of What would the Federal Reserve likely do...

Question 5

New regulations on financial firms include lower capital requirements and more restrictions on leverage.

Accepted Answer

This statement is false. In fact, new regulations on financial firms often include higher capital requirements and tighter restrictions on leverage in order to prevent another financial crisis like the one in 2008.

Question 6

In July 2013,Peruvian economists suggested that the Peruvian Central Bank might lower reserve requirements.
a.What problems might the Peruvian economy be facing if its central bank is considering lowering reserve requirements?
b.The economists agreed that the Peruvian central bank would lower its reserve requirements before it lowered interest rates.Would the Fed lower reserve requirements before lowering interest rates? Why or why not?

Accepted Answer

The answer of In July 2013,Peruvian economists suggested that the...

Question 7

Explain the various ways by which lower interest rates affect aggregate demand.

Accepted Answer

The answer of Explain the various ways by which lower...

Question 8

Explain why the short-run aggregate supply curve is upward sloping and discuss the implications of this fact for monetary policy.

Accepted Answer

The answer of Explain why the short-run aggregate supply curve...

Question 9

The United States faces similar struggles with regional differences that make monetary policy so difficult in the Eurozone.

Accepted Answer

The United States is a large country with diverse regions, each with their own economic challenges and needs. This can make it difficult for the Federal Reserve to implement a one-size-fits-all monetary policy that is appropriate for all regions at the same time. Similarly, the Eurozone consists of different countries with their own economic challenges and needs.

Question 10

Describe the classical theory of how a change in the money supply affects the price level in an economy.

Accepted Answer

The answer of Describe the classical theory of how a...

Question 11

The Bank of Ghana met in September 2013 to decide the appropriate positioning of the bank's policy rate.This closely watched rate is supposed to be an indicator and is supposed to serve as a reference cap for all other interest rates.What rate in the United States is comparable to the bank policy rate in Ghana?

Accepted Answer

The answer of The Bank of Ghana met in September...

Question 12

In May 2012,the People's Bank of China,which is akin to the Federal Reserve,lowered its reserve requirements.The goals of the People's Bank are similar to the goals of the Fed.
a.Which goals would require China's central bank to lower its reserve requirements?
b.One of China's goals conflicted with the goals that resulted in the reserve requirement being lowered.Which goal was temporarily set aside? (Hint: You do not have to know history to answer this question.What does lowering the reserve requirement do?)
c.The People's Bank has tools similar to the Fed's.How might the People's Bank have used its other tools?

Accepted Answer

The answer of In May 2012,the People's Bank of China,which...

Question 13

In September 2012,Norway's central bank said it would delay plans to tighten monetary policy.When the Norges Bank does pursue tighter monetary policy,what is likely to happen to the Norwegian krone and Norway's imports from other countries?

Accepted Answer

The answer of In September 2012,Norway's central bank said it...

Question 14

Suppose that in an economy the money supply is $40,velocity is 5,the average price is $10,and output is 20.Suppose the money supply falls in half.According to the monetarist school,what is the maximum change possible for the price level and output? What factors would cause no change in output?

Accepted Answer

The answer of Suppose that in an economy the money...

Question 15

Describe the equation of exchange and its implications for monetary policy.

Accepted Answer

The answer of Describe the equation of exchange and its...

Question 16

By December 2008,the Federal Reserve had essentially lowered the federal funds target to zero.

Accepted Answer

This is true. The Federal Reserve lowered the federal funds target to a range of 0-0.25% in December 2008 in response to the financial crisis.

Question 17

What are the limitations on the use of the classical theory of money?

Accepted Answer

The answer of What are the limitations on the use...

Question 18

The Eurozone is the only monetary union whose members are so economically diverse that the monetary authorities must choose the economic concerns of one region over another in formulating monetary policy.

Accepted Answer

While the Eurozone is a notable example of a monetary union with diverse economies, it is not the only one. Other monetary unions, such as the Eastern Caribbean Currency Union, also face similar challenges in balancing the economic concerns of different member regions.

Question 19

One factor that led to the 2007-2008 financial crisis was that investors underestimated the level of risk inherent in the mortgage market.

Accepted Answer

Investors believed that mortgage backed securities were safe investments and did not take into account the risk of defaults and foreclosures, leading to the collapse of the housing market and the financial crisis.

Question 20

In June 2013,China's central bank said it was open to adjusting its monetary policy in response to the economic slowdown.What response is appropriate for an economic slowdown,and what will happen to China's currency?

Accepted Answer

The answer of In June 2013,China's central bank said it...

Quiz 13: Monetary Policy