Question 1

Frictional employment which arises from the temporary unemployment of jobseekers, is also referred to as the full employment level of unemployment.

Accepted Answer

Frictional unemployment is a natural form of unemployment that occurs when people are between jobs or entering the workforce. Full employment refers to the lowest level of unemployment that an economy can sustain over the long run, which includes frictional unemployment but is not synonymous with it.

Question 2

Many economists believe that the natural unemployment rate in the United States is around 5%.

Accepted Answer

The natural rate of unemployment, often considered to be around 5% by many economists, represents the hypothetical unemployment rate at which the economy is at full employment, meaning that the number of people seeking jobs equals the number of jobs available, without causing inflation to rise. This rate includes frictional and structural unemployment but not cyclical unemployment.

Question 3

In the early 1980s, in the United States the unemployment rate got above 15% for the first time since the great depression in the 1930s.

Accepted Answer

In the early 1980s, the peak unemployment rate in the United States was about 10.8% in November 1982, not above 15%.

Question 4

In the 1970s and 1980s the natural unemployment rate rose to around 6 1/4 percent, because of baby boomers and the entry into the workforce by women.

Accepted Answer

During the 1970s and 1980s, the natural rate of unemployment in the United States did increase, in part due to the influx of baby boomers and women entering the workforce. This demographic shift temporarily increased the natural unemployment rate as the job market adjusted to the larger labor supply.

Question 5

The inherent difficulties in projecting the future evolution of the economy is perhaps the principal reason why we observed monetary policy inertia.

Accepted Answer

Monetary policy inertia often occurs because of the uncertainties and difficulties in accurately predicting future economic conditions, which makes policymakers cautious in adjusting monetary policy too frequently or drastically.

Question 6

The principal intermediate target of Federal Reserve policy, according to the textbook, is:

Accepted Answer

The answer of The principal intermediate target of Federal Reserve...

Question 7

A change in deposit reserve requirements affects:

Accepted Answer

A change in deposit reserve requirements affects the coefficient of expansion, the mix between excess and required reserves, and interest rates.

Question 8

Changes in the Federal Reserve's discount rate affect:

Accepted Answer

Changes in the Federal Reserve's discount rate influence the cost of borrowing reserves directly, which in turn affects other interest rates in the money and capital markets. Additionally, these changes can alter expectations about future credit conditions, as they signal the Fed's stance on monetary policy.

Question 9

If the Federal Reserve purchases securities from depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

Accepted Answer

When the Federal Reserve purchases securities from depository institutions, it increases the reserves of those institutions. This increase in reserves typically leads to a decrease in interest rates, not an increase, as the supply of money in the economy is increased. Choices A, C, and D are effects that are likely to occur following such a purchase, making B the correct answer as it is not likely to occur.

Question 10

If the Federal Reserve sells securities to depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

Accepted Answer

When the Federal Reserve sells securities to depository institutions, it effectively reduces the amount of reserves those institutions hold. This reduction in reserves can lead to an increase in interest rates, as there is less money available for lending. Therefore, the event not likely to occur is a fall in interest rates.

Question 11

When central bank officials issue letters and public statements in an effort to persuade individuals and institutions to follow what the central bank regards as more desirable behavior, this policy tool is called:

Accepted Answer

Moral suasion refers to the practice where central bank officials use public statements or letters to influence or persuade market participants and institutions to adhere to policies or behaviors that the central bank deems desirable, without the use of formal regulatory powers.

Question 12

A Federal Reserve open-market operation designed to keep the present pattern of interest rates and credit availability about where they are is known as a:

Accepted Answer

A defensive operation by the Federal Reserve in open-market operations is aimed at maintaining the current levels of interest rates and credit availability, rather than seeking to change them. This is done to manage the day-to-day liquidity of the banking system and to offset other conditions affecting bank reserves.

Question 13

A central bank such as the Federal Reserve uses selective credit controls to affect the financial system. An example of a selective credit control is:

Accepted Answer

Selective credit controls are specific measures aimed at controlling the amount of credit that can be extended for certain purposes. Legal interest-rate ceilings, which limit the interest rates that can be charged on loans, are an example of such controls. They are used to directly influence the cost and availability of credit for specific sectors or types of loans, unlike the discount rate, reserve requirements, and open-market operations, which affect the overall credit market.

Question 14

Which of the following are not subject to reserve requirements?

Accepted Answer

The answer of Which of the following are not subject...

Question 15

Cost, substitution and announcement effects are related to:

Accepted Answer

The answer of Cost, substitution and announcement effects are related...

Question 16

The spread between the discount rate and other money market rates determine the strength of:

Accepted Answer

The cost effect refers to the impact of changes in the discount rate on the cost of borrowing for financial institutions, influencing their lending and investment decisions.

Question 17

If an increased discount rate remains below other money market interest rates, the cost effect will cause:

Accepted Answer

The answer of If an increased discount rate remains below...

Question 18

The most flexible policy tool available to many of the world's central banks is:

Accepted Answer

The most flexible policy tool available to many of the world's central banks is the open-market operations tool. This is because it allows central banks to buy and sell government securities in the open market to control the supply of money in the banking system, which can be adjusted quickly and with precision to respond to changing economic conditions.

Question 19

Open-market operations of the Fed have two effects on the banking system and credit conditions. These effects are on:

Accepted Answer

Open-market operations directly affect interest rates and the volume of reserves in the banking system, influencing the availability and cost of credit.

Question 20

The Federal Reserve policy directive issued after each FOMC meeting summarizes information regarding:

Accepted Answer

The Federal Reserve policy directive issued after each FOMC meeting provides a summary that includes current economic developments, recent developments in the international money market, and information on the monetary aggregates.

Quiz 13: Central Banking and Monetary Policy: Exploring Tools and Strategies