Final Exam Part 4

Reviewed by Editorial Team
The ProProfs editorial team is comprised of experienced subject matter experts. They've collectively created over 10,000 quizzes and lessons, serving over 100 million users. Our team includes in-house content moderators and subject matter experts, as well as a global network of rigorously trained contributors. All adhere to our comprehensive editorial guidelines, ensuring the delivery of high-quality content.
Learn about Our Editorial Process
| By Tpc43b
T
Tpc43b
Community Contributor
Quizzes Created: 6 | Total Attempts: 1,901
| Attempts: 63
SettingsSettings
Please wait...
  • 1/98 Questions

    Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap) If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

    • 6.5%
    • 2.5%
    • 3.5%
    • 10.5%
Please wait...
About This Quiz

This Final Exam Part 4 assesses understanding of international economics, focusing on exchange rates, capital flows, and monetary policy. It tests the ability to analyze economic relationships and policy impacts in a global context.

Final Exam Part 4 - Quiz

Quiz Preview

  • 2. 

    The Federal Reserve was created in:

    • 1929

    • 1913

    • 1909

    • 1945

    Correct Answer
    A. 1913
    Explanation
    The correct answer is 1913. The Federal Reserve was created in 1913 through the enactment of the Federal Reserve Act. This act was passed by the United States Congress in response to a series of financial panics and banking crises that occurred in the late 19th and early 20th centuries. The Federal Reserve was established as the central banking system of the United States, with the goal of promoting a stable and secure financial system, controlling inflation, and managing the country's monetary policy.

    Rate this question:

  • 3. 

    The number of regional Federal Reserve Banks is:

    • Nine

    • Seven

    • Five

    • Twelve

    Correct Answer
    A. Twelve
    Explanation
    There are twelve regional Federal Reserve Banks in the United States. These banks are responsible for implementing monetary policy, supervising and regulating banks, and providing financial services to depository institutions. Each of these banks serves a specific region of the country and plays a crucial role in maintaining the stability and efficiency of the nation's financial system.

    Rate this question:

  • 4. 

    One monopoly that modern central banks have is in:

    • Regulating other banks

    • Making loans to banks

    • Issuing U.S. Treasury securities

    • Issuing currency

    Correct Answer
    A. Issuing currency
    Explanation
    Central banks have the monopoly in issuing currency. This means that they have the exclusive authority to create and distribute the national currency of a country. By controlling the money supply, central banks can influence interest rates, manage inflation, and stabilize the economy. This monopoly ensures that the central bank has the power to regulate and maintain the value of the currency in the economy.

    Rate this question:

  • 5. 

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

    • High securities prices

    • Low unemployment

    • Price stability

    • A strong domestic currency

    Correct Answer
    A. Price stability
    Explanation
    The primary objective of most central banks in industrialized economies is to maintain price stability. This means keeping inflation low and stable, ensuring that the general level of prices for goods and services remains steady over time. Price stability is important for economic growth and stability as it allows individuals and businesses to make informed decisions about spending, saving, and investing. It also helps to maintain the purchasing power of money and promotes confidence in the economy. By focusing on price stability, central banks can create a favorable environment for sustainable economic development.

    Rate this question:

  • 6. 

    The efficient allocation of resources requires:

    • That prices reflect the relative value of goods and services

    • That inflation not exceed three percent a year

    • Deflation

    • Prices to remain constant

    Correct Answer
    A. That prices reflect the relative value of goods and services
    Explanation
    Efficient allocation of resources requires that prices reflect the relative value of goods and services. This means that prices should accurately represent the worth or value of a particular product or service in relation to others. When prices reflect relative value, consumers are able to make informed decisions based on their preferences and budget constraints, while producers are incentivized to allocate resources efficiently and produce goods and services that are in demand. This helps to ensure that resources are allocated effectively and efficiently in the economy.

    Rate this question:

  • 7. 

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

    • Have the maximum growth rate possible

    • Keep the growth rate averaging zero

    • Keep the economy close to its potential or sustainable rate of growth

    • Balance every recession with a boom

    Correct Answer
    A. Keep the economy close to its potential or sustainable rate of growth
    Explanation
    The central bank aims to keep the economy close to its potential or sustainable rate of growth in terms of economic growth. This means that the central bank wants to maintain a steady and stable growth rate that is sustainable in the long term. By doing so, they can avoid excessive booms or recessions that can lead to economic instability. This approach allows for a balanced and controlled economic growth that can benefit the overall health and stability of the economy.

    Rate this question:

  • 8. 

    For the Federal Reserve, the largest liability on its balance sheet is:

    • Commercial bank reserves

    • Currency

    • Governments' accounts

    • Treasury certificates

    Correct Answer
    A. Currency
    Explanation
    The largest liability on the Federal Reserve's balance sheet is currency. This refers to the physical cash in circulation, such as banknotes and coins. As the central bank of the United States, the Federal Reserve is responsible for issuing and managing the supply of currency in the country. Currency is a liability for the Federal Reserve because it represents a debt owed to the holders of the cash. When individuals and businesses hold currency, it is essentially a claim on the central bank for the equivalent value in goods and services.

    Rate this question:

  • 9. 

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

    • Printing currency can be profitable for a government so government officials may have a strong incentive to print too much

    • Having large amounts of currency can lead to lower rates of inflation

    • Central banks use the profits from issuing currency to finance their operations

    • The only way to distribute currency to banks is through the central bank

    Correct Answer
    A. Printing currency can be profitable for a government so government officials may have a strong incentive to print too much
    Explanation
    Governments give their central bank control over issuing currency because printing currency can be profitable for a government. This profit motive may lead government officials to print too much currency, which can have negative consequences such as inflation. Additionally, central banks use the profits from issuing currency to finance their operations. Therefore, giving control to the central bank ensures that currency issuance is managed in a way that balances profitability and economic stability. The statement about distributing currency to banks through the central bank is not directly related to the given answer.

    Rate this question:

  • 10. 

    If the inflation rate in country A is 3.5% and the inflation rate in country B is 3.0%, we should expect the percentage change in the number of units of country A's currency per unit of country B's currency to be:

    • +0.5%

    • -0.5%

    • + 16.7%

    • +6.5%

    Correct Answer
    A. -0.5%
    Explanation
    When the inflation rate in country A is higher than in country B, it means that the purchasing power of country A's currency is decreasing at a faster rate compared to country B's currency. As a result, we should expect the number of units of country A's currency per unit of country B's currency to decrease. This decrease can be calculated by subtracting the inflation rate of country B from the inflation rate of country A, which in this case would be 3.5% - 3.0% = 0.5%. Therefore, the percentage change in the number of units of country A's currency per unit of country B's currency is -0.5%.

    Rate this question:

  • 11. 

    The Board of Governors of the Fed performs each of the following functions, except:

    • Analyzing financial and economic conditions

    • Setting the reserve requirement

    • Approving bank merger applications

    • Making discount loans

    Correct Answer
    A. Making discount loans
    Explanation
    The Board of Governors of the Fed performs several functions, such as analyzing financial and economic conditions, setting the reserve requirement, and approving bank merger applications. However, making discount loans is not one of their functions. Discount loans are typically made by the Federal Reserve Banks, not the Board of Governors.

    Rate this question:

  • 12. 

    Discount lending ties into the Fed's function of:

    • Lender of last resort

    • Open market operations

    • The government's bank

    • Regulation of banking

    Correct Answer
    A. Lender of last resort
    Explanation
    Discount lending refers to the practice of the Federal Reserve providing short-term loans to commercial banks and other financial institutions in times of financial distress or liquidity shortages. This function aligns with the concept of the "lender of last resort," as it ensures that banks have access to funds when they are unable to obtain them from other sources. By offering discount loans, the Fed helps stabilize the banking system and prevents potential bank failures, which could have a detrimental impact on the overall economy.

    Rate this question:

  • 13. 

    A good definition for intermediate targets of monetary policy would be:

    • Instruments under the direct control of central bankers but one step removed from operational targets

    • Instruments that are not under the direct control of the central banks but lie between operational instruments and objectives

    • The quantity or non-price targets of monetary policy

    • The real goals of monetary policy

    Correct Answer
    A. Instruments that are not under the direct control of the central banks but lie between operational instruments and objectives
    Explanation
    Intermediate targets of monetary policy refer to instruments that are not directly controlled by central banks but are positioned between operational instruments (such as interest rates) and the ultimate objectives of monetary policy (such as price stability or economic growth). These intermediate targets serve as indicators or benchmarks that central bankers use to guide and assess the effectiveness of their policy actions. By monitoring and influencing these intermediate targets, central banks aim to achieve their broader policy goals.

    Rate this question:

  • 14. 

    A central bank holds foreign exchange reserves primarily for:

    • Diversification purposes

    • Foreign exchange interventions

    • Safekeeping

    • Diversification and safekeeping

    Correct Answer
    A. Foreign exchange interventions
    Explanation
    Foreign exchange interventions refer to the actions taken by a central bank to influence the value of its currency in the foreign exchange market. These interventions can include buying or selling foreign currency to stabilize or manipulate the exchange rate. Therefore, a central bank holds foreign exchange reserves primarily for the purpose of conducting these interventions. By holding a significant amount of foreign currency reserves, the central bank can effectively intervene in the market and manage the exchange rate to ensure stability and support the country's economic goals.

    Rate this question:

  • 15. 

    The term for turning reserves into bank deposits is called:

    • Discounting

    • Balance sheet adjustment

    • Multiple deposit creation

    • Spreading

    Correct Answer
    A. Multiple deposit creation
    Explanation
    Multiple deposit creation refers to the process by which a bank can create additional deposits in the banking system through the lending and borrowing activities. When a bank receives a deposit, it is able to lend a portion of that deposit to borrowers, who in turn deposit the borrowed funds into their own accounts in other banks. This process continues, resulting in the creation of multiple deposits from a single initial deposit. Therefore, multiple deposit creation accurately describes the process of turning reserves into bank deposits.

    Rate this question:

  • 16. 

    If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal:

    • M

    • R

    • MB

    • ER

    Correct Answer
    A. MB
    Explanation
    The correct answer is MB. MB refers to the Monetary Base, which includes both currency (C) and reserves (R). Therefore, the sum of currency and reserves (C + R) would equal the Monetary Base (MB).

    Rate this question:

  • 17. 

    The focus for most central banks today is:

    • The quantity of M1

    • Interest rates

    • The quantity of M2

    • Controlling the size of the money multiplier

    Correct Answer
    A. Interest rates
    Explanation
    Central banks today primarily focus on interest rates. This is because central banks use interest rates as a tool to control inflation, stimulate economic growth, and maintain price stability. By adjusting interest rates, central banks can influence borrowing costs, which in turn affects consumer spending, business investment, and overall economic activity. Interest rates also play a crucial role in managing exchange rates and capital flows. Therefore, central banks closely monitor and adjust interest rates to achieve their monetary policy objectives.

    Rate this question:

  • 18. 

    The Chairman of the Board of Governors:

    • Serves a four-year term that cannot be renewed

    • Is selected from the Board of Governors, appointed by the U.S. President

    • Serves the same four-year term as the U.S. President

    • Serves an eight-year term

    Correct Answer
    A. Is selected from the Board of Governors, appointed by the U.S. President
    Explanation
    The correct answer is that the Chairman of the Board of Governors is selected from the Board of Governors and appointed by the U.S. President. This means that the Chairman is chosen from among the members of the Board of Governors and is then appointed to the position by the President. The answer does not mention the length of the Chairman's term, so we cannot determine that from the given information.

    Rate this question:

  • 19. 

    The monetary base is the sum of:

    • Reserves and M2

    • M1 and reserves

    • Currency in the hands of the public, reserves and M1

    • Currency in the hands of the public and reserves in the banking system

    Correct Answer
    A. Currency in the hands of the public and reserves in the banking system
    Explanation
    The correct answer is "Currency in the hands of the public and reserves in the banking system". The monetary base refers to the total amount of currency that is in circulation among the public and the reserves held by banks. This includes physical currency held by individuals and businesses, as well as the reserves held by banks in their accounts at the central bank. By including both currency in circulation and reserves, the monetary base represents the foundation of the money supply in an economy.

    Rate this question:

  • 20. 

    If country A wants to fix its exchange rate with country B, then:

    • Country A's inflation rate will have to match country B's

    • Country A's monetary policy must be conducted so the inflation rate in country A matches the inflation rate in country B

    • Country A's monetary policy will not be able to be used to address domestic issues

    • All of the answers given are correct

    Correct Answer
    A. All of the answers given are correct
    Explanation
    All of the answers given are correct because fixing the exchange rate between two countries requires the inflation rate in both countries to match. This means that country A's inflation rate will have to match country B's, and country A's monetary policy must be conducted in a way that ensures the inflation rate in country A matches the inflation rate in country B. Additionally, when a country fixes its exchange rate with another country, it restricts its ability to use monetary policy to address domestic issues. Therefore, all of the given answers are correct in explaining the requirements for fixing the exchange rate between country A and country B.

    Rate this question:

  • 21. 

    Which of the following features would characterize a good monetary policy instrument?

    • Observable only to monetary policy officials

    • Tightly linked to monetary policy objectives

    • Controllable and rigid

    • Difficult to change

    Correct Answer
    A. Tightly linked to monetary policy objectives
    Explanation
    A good monetary policy instrument should be tightly linked to monetary policy objectives. This means that the instrument should directly contribute to achieving the desired goals of the monetary policy, such as price stability or economic growth. By being closely aligned with these objectives, the instrument can effectively influence the economy and help the central bank in implementing its monetary policy.

    Rate this question:

  • 22. 

    The tools of monetary policy available to the Fed include each of the following, except the:

    • Currency-to-deposit ratio

    • Discount rate

    • Target federal funds rate

    • Reserve requirement

    Correct Answer
    A. Currency-to-deposit ratio
    Explanation
    The currency-to-deposit ratio is not a tool of monetary policy available to the Fed. The currency-to-deposit ratio refers to the proportion of currency (cash) held by individuals and businesses compared to the amount of money deposited in banks. It is a measure of the public's preference for holding cash versus depositing it in banks. While the Fed may monitor this ratio as an indicator of public demand for cash, it is not directly controlled or influenced by the Fed as a tool of monetary policy.

    Rate this question:

  • 23. 

    Which of the following would be categorized as an unconventional monetary policy tool?

    • Discount window lending

    • Lending to nonbanks

    • Federal funds rate target

    • Deposit rate

    Correct Answer
    A. Lending to nonbanks
    Explanation
    Lending to nonbanks would be categorized as an unconventional monetary policy tool because it involves providing loans to financial institutions that are not traditional banks. This tool is used by central banks to inject liquidity into the financial system and stimulate economic activity. Unlike discount window lending, which involves providing loans to traditional banks, lending to nonbanks targets a wider range of financial institutions such as investment banks, mortgage lenders, and other non-depository institutions. This tool is considered unconventional because it expands the scope of monetary policy beyond traditional banking channels.

    Rate this question:

  • 24. 

    The Fed is reluctant to change the required reserve rate because:

    • Changes in the rate have a small impact on the actual quantity of money

    • The money multiplier is not impacted by the required reserve rate

    • The time lag between changing the required reserve rate and changes in the money supply can be too long

    • Small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits

    Correct Answer
    A. Small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits
    Explanation
    The Fed is reluctant to change the required reserve rate because small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits. This means that even a slight adjustment in the reserve rate can result in a significant change in the overall money supply, which can have unintended consequences on the economy. The Fed prefers to avoid such drastic fluctuations and instead maintains a stable reserve rate to ensure a more predictable and controlled monetary policy.

    Rate this question:

  • 25. 

    From 1979 to 1982, the Fed targeted bank reserves as the monetary policy tool. One side effect of this strategy was:

    • The inflation rate increased to over 18 percent in 1983

    • Many banks failed that otherwise may not have

    • Interest rates rose very high

    • Inflation remained high for most of the 1980's

    Correct Answer
    A. Interest rates rose very high
    Explanation
    During the period from 1979 to 1982, the Federal Reserve used bank reserves as the main tool for implementing monetary policy. As a result, one of the unintended consequences was that interest rates increased significantly. This can be attributed to the fact that targeting bank reserves limited the availability of funds in the banking system, leading to a scarcity of money supply. Consequently, the increased demand for borrowing caused interest rates to rise as lenders sought to capitalize on the limited supply of funds.

    Rate this question:

  • 26. 

    When the Fed makes a discount loan, the impact on the Fed's balance sheet is:

    • An increase in liabilities with no change in assets

    • An increase in assets and a decrease in liabilities

    • A decrease in assets and an increase in liabilities

    • The same as that of an open market purchase

    Correct Answer
    A. The same as that of an open market purchase
    Explanation
    When the Fed makes a discount loan, it increases its assets by lending money to a bank, and at the same time, it increases its liabilities because it now owes that amount of money to the bank. This is the same impact as an open market purchase, where the Fed buys securities from the market, increasing its assets, and pays for them by creating new reserves, increasing its liabilities. Therefore, the correct answer is "The same as that of an open market purchase."

    Rate this question:

  • 27. 

    How many members belong to the board of directors for each of the Reserve Banks of the Fed?

    • Seven

    • Nine

    • Twelve

    • Fourteen

    Correct Answer
    A. Nine
    Explanation
    Each of the Reserve Banks of the Fed has nine members on its board of directors. These members are divided into three categories: Class A directors, who represent the member banks in the region; Class B directors, who represent the public and are chosen by the member banks; and Class C directors, who are appointed by the Board of Governors and represent the public interest. Together, these nine directors oversee the operations of the Reserve Bank and make decisions regarding monetary policy and economic conditions in their respective regions.

    Rate this question:

  • 28. 

    Most of the Fed's income is:

    • Paid to member banks in the form of a dividend

    • Sent to the FDIC to shore up the depositor insurance fund

    • Returned to the U.S. Treasury

    • Used to build the Fed's portfolio of securities

    Correct Answer
    A. Returned to the U.S. Treasury
    Explanation
    The correct answer is "Returned to the U.S. Treasury". This means that most of the income earned by the Federal Reserve is given back to the U.S. Treasury. This is important because it helps to fund the government's operations and reduce the budget deficit. By returning the income to the Treasury, the Federal Reserve ensures that the money is used for the benefit of the overall economy and the country as a whole.

    Rate this question:

  • 29. 

    The objectives set for the Fed by Congress are:

    • Very specific; this adds to the Fed's accountability

    • By design, quite vague, allowing the Fed to really set its own goals

    • Specific regarding inflation, but vague on all other goals

    • Specific on the growth rate for the economy, but vague on all other objectives

    Correct Answer
    A. By design, quite vague, allowing the Fed to really set its own goals
    Explanation
    The correct answer is "By design, quite vague, allowing the Fed to really set its own goals." This means that the objectives set for the Fed by Congress are intentionally not specific, giving the Fed the flexibility to determine its own goals. This allows the Fed to adapt its objectives based on the current economic conditions and make decisions that it believes will best serve the overall economy. By having vague objectives, the Fed can exercise its independence and discretion in setting and adjusting its goals as needed.

    Rate this question:

  • 30. 

    The types of loans the Fed makes consist of each of the following, except:

    • Primary credit

    • Conditional credit

    • Seasonal credit

    • Secondary credit

    Correct Answer
    A. Conditional credit
    Explanation
    The question asks for the type of loan that the Fed does not make. The Fed offers primary credit, seasonal credit, and secondary credit. However, conditional credit is not a type of loan offered by the Fed.

    Rate this question:

  • 31. 

    Monetary policy operations for central banks are run through changes in the liability category of:

    • Government's accounts

    • Currency

    • Reserves

    • Gold

    Correct Answer
    A. Reserves
    Explanation
    Central banks conduct monetary policy operations by making changes to their reserves. Reserves refer to the deposits held by the central bank on behalf of commercial banks and the government. By adjusting the level of reserves, central banks can influence the amount of money in circulation and control interest rates. This allows them to manage inflation, stabilize the economy, and promote economic growth.

    Rate this question:

  • 32. 

    The United States would be characterized as having:

    • A controlled domestic interest rate, a closed capital market and a flexible exchange rate

    • A controlled domestic interest rate, an open capital market and a flexible exchange rate

    • No control over the domestic interest rate, an open capital market and a flexible exchange rate

    • A controlled domestic interest rate, an open capital market and a fixed exchange rate

    Correct Answer
    A. A controlled domestic interest rate, an open capital market and a flexible exchange rate
    Explanation
    The United States would be characterized as having a controlled domestic interest rate because the Federal Reserve has the ability to adjust interest rates to control inflation and stimulate or slow down economic growth. It also has an open capital market, meaning that foreign investors are able to freely invest in the US market. Lastly, the US has a flexible exchange rate, which means that the value of the US dollar is determined by market forces and can fluctuate in response to supply and demand.

    Rate this question:

  • 33. 

    Vault cash is:

    • Equal to the total amount of reserves and is an asset of the central bank

    • Not reserves but is a liability of the central bank

    • A part of reserves and an asset of commercial banks

    • Not reserves but is an asset of central banks

    Correct Answer
    A. A part of reserves and an asset of commercial banks
    Explanation
    Vault cash refers to the physical currency held by commercial banks in their vaults. It is considered a part of their reserves because it can be used to meet the cash demands of their customers. Additionally, vault cash is also considered an asset of commercial banks because it represents a valuable resource that they can utilize to conduct their operations.

    Rate this question:

  • 34. 

    To be independent, a central bank must have:

    • Its policies overturned only by the president

    • Control of its own budget

    • The board members appointed for very short terms

    • The chairperson serve as a member of the President's cabinet

    Correct Answer
    A. Control of its own budget
    Explanation
    For a central bank to be independent, it must have control of its own budget. This means that the central bank should have the authority to determine and manage its own financial resources without interference from external entities. Having control of its own budget allows the central bank to make decisions based on its own assessment of the economic situation and monetary policy goals, rather than being influenced by political or fiscal considerations. This independence is crucial for the central bank to effectively carry out its mandate of maintaining price stability and promoting financial stability in the economy.

    Rate this question:

  • 35. 

    One reason for having a monetary policy framework is:

    • It makes clear what specific goals the central bankers are pursuing

    • It provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets

    • It provides central bankers the secrecy needed to perform their jobs effectively

    • It can make goal setting vague enough so that the central bankers can always claim success

    Correct Answer
    A. It makes clear what specific goals the central bankers are pursuing
    Explanation
    Having a monetary policy framework is important because it makes clear the specific goals that central bankers are pursuing. This clarity is crucial for effective decision-making and communication with the public and financial markets. It allows for transparency and accountability, ensuring that the actions of central bankers are aligned with their stated objectives. Without a clear framework, it would be difficult to assess the effectiveness of monetary policy and hold central bankers accountable for their actions.

    Rate this question:

  • 36. 

    If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country:

    • Exports more than it imports

    • Must have ample gold reserves

    • Cannot have a domestic monetary policy

    • Must be running large trade deficits

    Correct Answer
    A. Cannot have a domestic monetary policy
    Explanation
    If capital flows freely between countries and a country has a fixed exchange rate, it means that the country cannot control its domestic monetary policy. This is because a fixed exchange rate requires the country to maintain the value of its currency relative to other currencies, and this can only be achieved by adjusting the money supply. Therefore, the country cannot independently set interest rates or control inflation through monetary policy.

    Rate this question:

  • 37. 

    Which of the following would be an example of a capital outflow control?

    • Mexico limiting the number of U.S. dollars an American can bring into the country

    • Mexico limiting the number of U.S. dollars its citizens can purchase before leaving on their vacation to the U.S.

    • Mexico limiting the number of pesos its citizens can take out of the country

    • All of the answers given would be examples of capital outflow controls

    Correct Answer
    A. Mexico limiting the number of pesos its citizens can take out of the country
    Explanation
    This answer is correct because it describes a situation where Mexico is limiting the amount of its own currency, pesos, that its citizens can take out of the country. This restriction on the outflow of pesos can be considered a capital outflow control as it aims to regulate the movement of funds from the country.

    Rate this question:

  • 38. 

    If foreigners are restricted in their ability to buy investments in a country then that government is imposing:

    • Controls on capital inflows

    • Controls on capital outflows

    • Controls on both capital inflows and outflows

    • Fixed exchange rates

    Correct Answer
    A. Controls on capital inflows
    Explanation
    If foreigners are restricted in their ability to buy investments in a country, it means that the government is imposing controls on capital inflows. This means that the government is regulating and limiting the amount of foreign capital that can enter the country through investments. By imposing these controls, the government aims to manage and control the flow of foreign investment in order to protect the country's economy and maintain stability.

    Rate this question:

  • 39. 

    If the market federal funds rate were below the target rate, the response from the Fed would likely be to:

    • Raise the required reserve rate

    • Purchase U.S. Treasury securities

    • Sell U.S. Treasury securities

    • Raise the discount rate

    Correct Answer
    A. Sell U.S. Treasury securities
    Explanation
    When the market federal funds rate is below the target rate, it means that there is excess liquidity in the market. In order to reduce this liquidity and bring the market rate closer to the target rate, the Federal Reserve would likely sell U.S. Treasury securities. By selling these securities, the Fed would decrease the money supply in the market, which would increase the market federal funds rate and bring it closer to the target rate. This action is a contractionary monetary policy measure aimed at tightening the money supply and controlling inflation.

    Rate this question:

  • 40. 

    The components of the formula for the Taylor rule includes each of the following, except:

    • The target federal funds rate

    • The current inflation rate

    • The 30-year U.S. Treasury bond rate

    • The inflation gap

    Correct Answer
    A. The 30-year U.S. Treasury bond rate
    Explanation
    The components of the Taylor rule are the target federal funds rate, the current inflation rate, and the inflation gap. The 30-year U.S. Treasury bond rate is not included in the formula for the Taylor rule. The Taylor rule is a monetary policy guideline that suggests how central banks should adjust interest rates in response to changes in economic conditions. It is based on the premise that central banks should respond to inflation and economic output. The 30-year U.S. Treasury bond rate is not directly related to these factors and therefore is not included in the formula.

    Rate this question:

  • 41. 

    An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show:

    • Only an increase in liabilities

    • Only a decrease in assets

    • No net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing

    • No net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing

    Correct Answer
    A. No net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing
    Explanation
    When the Fed conducts an open market sale of U.S. Treasury securities, it means that the Fed is selling these securities to the public. As a result, the banking system's balance sheet will show no net change in assets or liabilities because the sale of securities is offset by a decrease in reserves. However, there will be a change in the composition of assets, with securities increasing and reserves decreasing. This means that the banking system will hold more securities and less reserves after the sale, but the overall value of assets and liabilities will remain the same.

    Rate this question:

  • 42. 

    If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess reserves, then m would equal:

    • R/ER

    • M/MB

    • C + D

    • D - C

    Correct Answer
    A. M/MB
    Explanation
    The correct answer is M/MB because the money multiplier (m) is calculated by dividing the quantity of money (M) by the monetary base (MB). The money multiplier represents the amount of money that can be created through the banking system based on the initial injection of funds.

    Rate this question:

  • 43. 

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

    • To finance government spending the Treasury has to order more currency from the central bank

    • Fiscal policymakers always have to borrow to increase spending

    • Fiscal policymakers cannot borrow unless the Federal Reserve prints more money

    • Increased government spending has to be financed with either higher taxes or increased government borrowing

    Correct Answer
    A. Increased government spending has to be financed with either higher taxes or increased government borrowing
    Explanation
    An independent central bank means that the government does not have direct control over monetary policy. Therefore, fiscal policymakers cannot simply order more currency from the central bank to finance government spending. Instead, increased government spending has to be financed through either higher taxes or increased government borrowing. This is because the central bank's independence ensures that monetary policy decisions are made separately from fiscal policy decisions.

    Rate this question:

  • 44. 

    Member banks of the Federal Reserve System include:

    • Only nationally chartered banks

    • All state chartered banks with assets exceeding $100 million

    • Nationally chartered banks and state chartered banks that decide to join

    • Nationally chartered banks and all state chartered banks

    Correct Answer
    A. Nationally chartered banks and state chartered banks that decide to join
    Explanation
    The correct answer is nationally chartered banks and state chartered banks that decide to join. This means that both nationally chartered banks and state chartered banks have the option to become member banks of the Federal Reserve System. It is not limited to only one type of bank or only banks with a certain level of assets.

    Rate this question:

  • 45. 

    The Governors of the Federal Reserve System are appointed by the: 

    • Member banks from their home district

    • Board of Directors of the Reserve Bank from their home district

    • President of the United States

    • Chairman of the Federal Reserve System

    Correct Answer
    A. President of the United States
    Explanation
    The correct answer is President of the United States. The President has the authority to appoint the Governors of the Federal Reserve System. This is in line with the Federal Reserve Act, which grants the President the power to nominate and appoint individuals to serve on the Board of Governors. The President's appointment is subject to Senate confirmation. The appointment of the Governors by the President ensures that there is a level of political accountability and oversight in the Federal Reserve System.

    Rate this question:

  • 46. 

    The primary purpose of meetings of the FOMC is to:

    • Set the required reserve rate

    • Set the discount rate

    • Decide on the target interest rate

    • Set the prime rate

    Correct Answer
    A. Decide on the target interest rate
    Explanation
    The primary purpose of meetings of the FOMC is to decide on the target interest rate. The FOMC, or Federal Open Market Committee, is responsible for setting monetary policy in the United States. One of the key tools they use to influence the economy is adjusting the target interest rate. By raising or lowering this rate, the FOMC can impact borrowing costs, investment, and overall economic activity. Therefore, deciding on the target interest rate is a crucial function of the FOMC meetings.

    Rate this question:

  • 47. 

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

    • Providing loans during times of financial distress

    • Providing deposit insurance

    • Overseeing commercial banks and the financial system

    • Managing the payments system

    Correct Answer
    A. Providing deposit insurance
    Explanation
    A central bank serves as the bankers' bank by overseeing commercial banks and the financial system, managing the payments system, and providing loans during times of financial distress. However, providing deposit insurance is not a function of a central bank. Deposit insurance is typically provided by separate entities, such as government agencies or private insurance companies, to protect depositors in the event of bank failures.

    Rate this question:

  • 48. 

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

    • High stock prices

    • Low and stable inflation

    • High and stable real growth

    • A stable exchange rate

    Correct Answer
    A. High stock prices
    Explanation
    Central banks are responsible for managing a country's monetary policy and maintaining financial stability. Their specific goals typically include low and stable inflation, high and stable real growth, and a stable exchange rate. However, central banks do not have the objective of directly influencing or targeting high stock prices. While they may indirectly impact stock markets through their policies, their primary focus is on overall economic stability rather than specific stock market outcomes.

    Rate this question:

  • 49. 

    Central banks often find:

    • They can efficiently pursue all of their goals simultaneously

    • There are tradeoffs that make pursuing all of their goals simultaneously impossible

    • The goal(s) they pursue will be determined by stock market behavior

    • They must keep their goals secret or else they cannot be attained

    Correct Answer
    A. There are tradeoffs that make pursuing all of their goals simultaneously impossible
    Explanation
    Central banks often find that there are tradeoffs that make pursuing all of their goals simultaneously impossible. This means that they cannot effectively achieve all of their objectives at the same time due to conflicting priorities or limited resources. They must make strategic decisions and prioritize certain goals over others, considering the potential impact and consequences of their actions. This recognition of tradeoffs is crucial for central banks to effectively manage monetary policy and maintain stability in the economy.

    Rate this question:

Quiz Review Timeline (Updated): May 11, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • May 11, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 05, 2012
    Quiz Created by
    Tpc43b
Back to Top Back to top
Advertisement
×

Wait!
Here's an interesting quiz for you.

We have other quizzes matching your interest.