Deck 15: Central Banks in the World Today

Question 1

The primary objective of most central banks in industrialized economies is:

A)high securities prices.
B)low unemployment.
C)price stability.
D)a strong domestic currency.

Answer 1

C

Question 2

One monopoly that modern central banks have is in:

A)regulating other banks.
B)making loans to banks.
C)issuing U.S.Treasury securities.
D)issuing currency.

Answer 2

D

Question 3

Which of the following statement is true?

A)Printing currency can be a profitable venture for a government.
B)Printing currency, while necessary, is a losing venture for a government.
C)Too much money printed usually leads to lower prices.
D)In the modern economy the amount of money created has no effect on prices.

Answer 3

A

Question 4

In 2012, the average daily volume on the Federal Reserve's Fedwire system was:

A)$24 billion.
B)$240 billion.
C)$2.4 trillion.
D)$240 million.

Question 5

A primary goal of central banks is to:

A)reduce the idiosyncratic risk that impacts specific investments.
B)reduce systematic risk.
C)keep stock and bond prices high.
D)keep inflation rates high.

Question 6

The number of central banks that exist in the world today is:

A)less than 10.
B)about 250.
C)over 170.
D)over 50 but less than 100.

Question 7

The specific goals of central banks include each of the following, except:

A)high and stable real growth.
B)low and stable inflation.
C)high levels of exports.
D)low and stable unemployment.

Question 8

The specific goals of central banks include all of the following except:

A)high stock prices.
B)low and stable inflation.
C)high and stable real growth.
D)a stable exchange rate.

Question 9

Central banks often find:

A)they can efficiently pursue all of their goals simultaneously.
B)there are tradeoffs that make pursuing all of their goals simultaneously impossible.
C)the goal(s) they pursue will be determined by their profitability.
D)they must keep their goals secret or else they cannot be attained.

Question 10

Monetary policy in the United States is under the control of:

A)the U.S.Treasury.
B)the President.
C)the Federal Reserve.
D)the U.S.Senate.

Question 11

Which is a function of modern central banks?

A)To control securities markets
B)To control the government's budget
C)To control the availability of money and credit
D)To manage fiscal policy

Question 12

The stability of the financial system is enhanced by the ability of central banks to:

A)be a lender of last resort.
B)provide loans to insolvent banks.
C)provide deposit insurance.
D)convert poorly run banks into branches of the central bank.

Question 13

The rationale for the existence of central banks is mainly that:

A)financial markets lack transparency.
B)they are needed for the supervision of banks.
C)financial intermediation cannot occur without a central bank.
D)financial systems are prone to periods of extreme volatility.

Question 14

The Federal Reserve's Fedwire system is used mainly to provide:

A)a means for foreign banks to transfer funds to U.S.banks.
B)an inexpensive and reliable way for financial institutions to transfer funds to one another.
C)an inexpensive way for individuals to pay their bills on-line.
D)a means for the Treasury to collect tax payments.

Question 15

The central bank in the United States is:

A)the Bank of America.
B)the Federal Reserve.
C)the U.S.Treasury.
D)the Bank of the United States.

Question 16

In its role as the bankers' bank, a central bank performs each of the following, except:

A)providing loans during times of financial distress.
B)providing deposit insurance.
C)overseeing commercial banks and the financial system.
D)managing the payments system.

Question 17

The central bank has the ability to create money; this means it:

A)can control the availability of money but not the availability of credit in the economy.
B)can make loans only when other institutions can.
C)can impact the rate of inflation.
D)has an objective to maximize its profit.

Question 18

In the U.S.the authority to issue currency is held by:

A)the Federal Reserve.
B)the U.S.Treasury.
C)the Office of the Comptroller of the Currency.
D)the U.S.Mint.

Question 19

The ability to create money means the central bank can control:

A)the availability of money and credit in a country's economy.
B)tax revenue.
C)the unemployment rate.
D)government expenditures.

Question 20

Many governments give their central bank control over issuing currency because:

A)printing currency can be profitable for a government so government officials may have a strong incentive to print too much.
B)having large amounts of currency can lead to lower rates of inflation.
C)central banks use the profits from issuing currency to finance their operations.
D)the only way to distribute currency to banks is through the central bank.

Question 21

In terms of economic growth, the central bank would like to:

A)have the maximum growth rate possible.
B)keep the growth rate averaging zero.
C)keep the economy close to its potential or sustainable rate of growth.
D)balance every recession with a boom.

Question 22

The efficient allocation of resources requires:

A)that prices reflect the relative value of goods and services.
B)that inflation not exceed three percent a year.
C)deflation.
D)prices to remain constant.

Question 23

Everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank:

A)will keep interest rates low to keep the momentum.
B)will now identify this new rate as the sustainable rate and try to maintain it.
C)is likely to raise interest rates to slow the rate of growth.
D)is likely to lower the interest rate thinking a slowdown is coming to offset this boom.

Question 24

At a growth rate of 6% an economy will double in size in:

A)7 years.
B)14 years.
C)12 years.
D)6 years.

Question 25

Since the Federal Reserve was created, it has:

A)averted all financial panics that could have plagued the U.S.economy.
B)averted a few financial panics but not most.
C)improved its skill at securing financial stability.
D)proved to be much better at preventing international panics than domestic ones.

Question 26

If prices are not stable:

A)money becomes less useful as a store of value.
B)money performs better as a unit of account.
C)it may be an inconvenience, but resources are still allocated efficiently.
D)prices become highly useful for conveying information.

Question 27

The main problem from inflation as seen by most economists is:

A)inflation raises prices more than wages.
B)inflation harms lenders more than it benefits borrowers.
C)during periods of inflation some prices fall.
D)inflation creates risk.

Question 28

Over very long periods, U.S.real economic growth averaged around:

A)3 percent per year.
B)1 percent per year.
C)5 percent per year.
D)7 percent per year.

Question 29

Higher than expected inflation will increase the:

A)real interest rate borrowers pay on fixed rate mortgages.
B)nominal amounts people need to save for retirement.
C)real interest rate savers earn on fixed rate CDs.
D)real interest rates both paid on mortgages and earned on CDs.

Question 30

Which of the following statements is not true?

A)The potential growth rate in the U.S.economy may have fallen following the financial crisis of 2007-2009.
B)Periods of growth below the potential level are periods of low unemployment.
C)Periods of growth above the potential level are periods of low employment.
D)Periods of growth below the potential level are periods of high unemployment.

Question 31

Potential output depends on all of the following except:

A)technology.
B)the number of firms in the economy.
C)the size of the capital stock.
D)the number of people who can work.

Question 32

All of the following are consequences of an economy operating above its potential level except:

A)high rates of inflation.
B)high interest rates.
C)low unemployment.
D)stable prices.

Question 33

The problem for a central bank setting a zero inflation policy would be:

A)the risk of high employment.
B)it is impossible to have zero inflation.
C)firms would have to cut the nominal wage to reduce the real wage.
D)economic growth would also have to be zero.

Question 34

Which of the following is the best analogy? Inflation is like:

A)a pound having more ounces.
B)a day having more hours.
C)a minute having fewer seconds.
D)a mile having more feet.

Question 35

Stable inflation implies:

A)that the rate of inflation averaged over many years is zero.
B)that inflation is predictable.
C)that the rate of inflation conceals relative price changes.
D)low rates of unemployment.

Question 36

Which of the following statements is most accurate?

A)As the inflation rate increases, inflation becomes less stable.
B)As the inflation rate decreases inflation becomes less stable.
C)As the inflation rate decreases inflation becomes more volatile.
D)As the inflation rate increases, inflation becomes more stable.

Question 37

Which of the following statements regarding growth was brought out from the material in Chapter 15?

A)Stability results in higher output growth rates.
B)Inflation volatility results in higher output growth rates.
C)There is no correlation between the volatility in growth rates and annual output growth.
D)The more volatile the growth rate, the higher is the annual output growth.

Question 38

Most economists agree that the target rate of inflation for the central banks should be:

A)between 7 and 9 percent.
B)less than zero.
C)above zero for fears of deflation.
D)something over 3 but less than 6 percent.

Question 39

The correlation between high rates of inflation and economic growth is:

A)direct; one brings about the other.
B)inverse; high inflation usually means low economic growth.
C)there is no correlation between these measures.
D)is direct at low rates of economic growth and inverse at high rates.

Question 40

Keeping interest rates stable is:

A)the most important goal for a central bank.
B)a key goal, because stable interest rates will result in all other goals being achieved.
C)a secondary goal for central banks.
D)not a goal of the central bank.

Question 41

Central bank accountability means:

A)politicians will establish goals and central bankers will report on their progress.
B)central bankers are not accountable to any elected officials.
C)central bankers are only accountable to the banks in their respective countries.
D)central bankers must hold press conferences to explain their monetary policy views.

Question 42

There is a strong consensus among economists that monetary policy is more effective when it is formed:

A)by an individual rather than a committee.
B)in secrecy without the reasoning behind it being revealed for many years.
C)to keep financial markets guessing.
D)independently of political pressure.

Question 43

The idea that central banks should be independent of political pressure is an idea that:

A)has been around since there were central banks.
B)is relatively new.
C)every central bank was founded upon.
D)became quite popular in the early 1900s.

Question 44

In the United States, monetary policy is formed by:

A)an individual advised by a close group of people.
B)committee.
C)the President and approved by Congress.
D)the Chairman of the Federal Reserve and can only be overturned by the presidents of the Regional Federal Reserve Banks.

Question 45

Which of the following would give the most importance to the goal of exchange rate stability?

A)Large, closed economies
B)The U.S.and Japan and other developed countries
C)Emerging market countries where exports and imports are central to the structure of the economy
D)Europe

Question 46

In the United States, one problem with central bank independence is:

A)it is almost impossible to obtain because Congress controls the budget of the Federal Reserve.
B)in a representative democracy, monetary policymakers must be held accountable to the public.
C)central bank independence has not produced favorable results.
D)the central bank can control policy, but the U.S.Treasury issues currency.

Question 47

One argument for an independent central bank is:

A)successful monetary policy requires a long time horizon usually well beyond the next election of most public officials.
B)without independence competent people would not take a position in a central bank.
C)the central bank usually hires more competent individuals than the Treasury department or other finance ministries.
D)central bankers have a short-run focus that usually corrects problems faster.

Question 48

To be independent, a central bank must have:

A)its policies overturned only by the president.
B)control of its own budget.
C)the board members appointed for very short terms.
D)the chairperson serve as a member of the President's cabinet.

Question 49

Compared to an independent central bank, elected officials are likely to:

A)favor long-run stability over short-term prosperity.
B)sacrifice short-term growth to keep future inflation low.
C)choose monetary policies that are overly accommodative.
D)prefer interest rates to vary more often.

Question 50

Interest rate volatility is a problem because:

A)it adds to uncertainty, thereby diminishing the investment.
B)it decreases risk.
C)it can impact productivity in a positive way.
D)financial decisions become less difficult when interest rates are more volatile.

Question 51

Successful monetary policy relies most on:

A)having an ample supply of highly qualified people.
B)luck.
C)the institutional environment.
D)knowledgeable citizens who know how to react to the policy.

Question 52

The 1990s saw inflation fall and real growth increase in the U.S.and in many other countries.This is partially attributed to all of the following except:

A)technological innovation.
B)redesign of many central banks.
C)central banks became better at their jobs.
D)central banks focused more on exchange rates in a global environment.

Question 53

During the financial crisis of 2007-2009 the U.S.Federal Reserve used its powers in all but which of the following ways:

A)lending to nonbanks.
B)accepting very illiquid collateral against its loans.
C)lowered bank reserve requirements.
D)lowered its policy rate to zero.

Question 54

Most central banks of industrialized countries have monetary policy formed by:

A)an individual, usually the minister of finance.
B)their version of Congress.
C)a committee made up of members of their central bank.
D)an individual, usually the person heading the central bank at the time.

Question 55

Empirical research seems to verify that:

A)countries that have less independent central banks experience lower rates of inflation.
B)countries that have high rates of inflation seem to have central banks with low levels of independence.
C)there is no relationship between the independence of central banks and rates of inflation.
D)the rate of inflation seems to vary directly with the amount of central bank independence.

Question 56

The operational components required for truly independent central banks include:

A)a budget controlled by Congress.
B)the ability to have policies reversed.
C)monetary policies that cannot be reversed by anyone outside of the central bank.
D)the chairperson of the bank being answerable only to the President.

Question 57

Exchange-rate stability is likely to be a more important goal for the central banks of:

A)emerging market economies than the central bank of the U.S.
B)the U.S.and Japan than most small developing countries.
C)countries where exports and imports make up a small total of all economic activity.
D)large, closed economies.

Question 58

Most economists agree that a well-designed central bank would:

A)be independent of political pressure.
B)make its policy actions difficult to interpret.
C)be accountable only to other banks.
D)be run by one key policy maker.

Question 59

Central banks are in a position to control risk in the economy because they:

A)control the unemployment rate.
B)control the economy's real growth rate.
C)control short-term interest rates.
D)can change taxes.

Question 60

The interest rate decisions made by the Federal Open Market Committee:

A)can be overridden by the President.
B)can be overridden by the Secretary of the Treasury.
C)can be overridden by the U.S.Senate by a two-thirds majority.
D)cannot be overridden by anyone outside of the Federal Reserve.

Question 61

Which of the following statements is most true concerning economic policy in the U.S.?

A)Monetary policymakers tend to have a long view while fiscal policymakers tend to ignore the long-run inflationary ramifications of their actions.
B)Fiscal policymakers tend to focus on inflation and unemployment while monetary policymakers focus most of their attention on the money supply and the exchange rate.
C)Fiscal policymakers tend to focus more on pleasing their constituents and so are willing to sacrifice the short run for the long run.
D)Monetary policy independence is enshrined in the U.S.Constitution.

Question 62

Which of the following statements is most accurate?

A)Central bank statements in developed countries are similar both in length and in the speed with which policy changes are announced.
B)Central bank statements in developed countries differ both in length and in the speed with which policy changes are announced.
C)Central bank statements in developed countries are similar in length but differ in the speed with which policy changes are announced.
D)Central bank statements in developed countries differ in length but are similar in the speed with which policy changes are announced.

Question 63

For fiscal policymakers, one of the results of an independent central bank is:

A)to finance government spending the Treasury has to order more currency from the central bank.
B)fiscal policymakers always have to borrow to increase spending.
C)fiscal policymakers cannot borrow unless the Federal Reserve prints more money.
D)increased government spending has to be financed with either higher taxes or increased government borrowing.

Question 64

Today, most central banks announce their policy actions:

A)one year after the policy is put in place.
B)almost immediately.
C)within a 3 to 5 year "window".
D)usually six months after the policy is put in place.

Question 65

One reason for having a monetary policy framework is:

A)it makes clear what specific goals the central bankers are pursuing.
B)it provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets.
C)it provides central bankers the secrecy needed to perform their jobs effectively.
D)it can make goal setting vague enough so that the central bankers can always claim success.

Question 66

The ability to control inflation expectations is most closely related to a central bank's:

A)transparency.
B)credibility.
C)accountability.
D)willingness to communicate.

Question 67

The Federal Reserve's policy regarding announcing its policy decisions has:

A)always been to announce it immediately; that was part of the original Federal Reserve Act of 1913.
B)only recently gone to immediate announcement; until 1994 these policy decisions were secret.
C)been to release the decisions immediately since its early failure at preventing the Great Depression.
D)changed so that now the Fed does not release its decisions publicly.

Question 68

In the United States, the Federal Reserve is asked to:

A)deliver on a specific inflation target set by Congress.
B)meet an explicit target for economic growth.
C)meet a specific target for unemployment each year.
D)deliver price stability as one of a number of objectives.

Question 69

To say monetary policy is transparent implies:

A)that anyone could figure out what the correct policy should be.
B)monetary policy should not be so difficult that most people couldn't understand it.
C)policymakers offer plausible explanations for their decisions along with supporting data.
D)that when faced with the same problem, policymakers will always react the same way.

Question 70

In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast inflation rates for the next decade in the United States were:

A)0%.
B)2%.
C)4%.
D)7%.

Question 71

One problem for the Federal Reserve regarding setting policy stems from the fact that:

A)there are multiple goals that may be inconsistent with each other.
B)there are more policy instruments than goals.
C)Congress sets very tight goal ranges that the central bankers must hit.
D)the membership of its governing board changes so often.

Question 72

The central bank for the euro area tries to achieve accountability and transparency through a:

A)standard numerical objective for inflation over the medium term.
B)specific target for unemployment and economic growth.
C)following the monetary policy guidance of the European Parliament.
D)specific target for the dollar euro exchange rate.

Question 73

Setting an explicit numerical inflation target is most associated with the goal(s) of:

A)transparency.
B)accountability.
C)both transparency and accountability.
D)neither transparency nor accountability; it's about moral hazard.

Question 74

One thing that is true about economic policy in the U.S.is:

A)fiscal and monetary policy never conflict.
B)monetary and fiscal policy need not, but may conflict.
C)monetary policy ultimately controls fiscal policy since the Fed controls the money supply.
D)fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

Question 75

The means for assuring accountability and transparency:

A)may differ across the central banks of different countries.
B)are the same for all successful central banks.
C)involve setting specific numerical targets so there is no confusion as to what the goal is.
D)are opposite to each other; increasing one means decreasing the other.

Question 76

Whenever central bankers face more than one goal, the policy framework requires:

A)the central bank to always focus on inflation first.
B)central bankers to focus on all goals, no matter what.
C)economic growth to be the top priority.
D)central bankers to make their priorities clear.

Question 77

In the United Kingdom accountability and transparency for its central bank is achieved by setting:

A)a numerical target for unemployment each year.
B)a numerical target for economic growth.
C)numerical targets for economic growth and the exchange rate.
D)an explicit numerical target for inflation.

Question 78

One use of a monetary policy framework is to clarify all of the following except:

A)the likely response when policy goals are in conflict with one another.
B)the goal that is currently receiving the most attention.
C)how goals will be measured.
D)why zero inflation is not desirable.

Question 79

One reason given for more central bankers releasing its decisions publicly is:

A)for monetary policy to work, people must be taken by surprise.
B)most people do not understand monetary policy so it really doesn't do any harm to release the decisions publicly.
C)so that central banks across the world can coordinate their policies.
D)monetary policy is more effective when households and businesses can understand and anticipate it.

Question 80

The monetary policy framework is:

A)the Law that created the Federal Reserve System.
B)the idea that central banks should be interconnected across countries.
C)a way to prioritize and implement the central bank's objectives when they are in conflict.
D)a growing belief that there should be one central bank headquartered at the World Bank.