Final Exam Part 4

98 Questions | Total Attempts: 39

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Final Exam Quizzes & Trivia

Econ 3229 Study Guide


Questions and Answers
  • 1. 
    If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country:
    • A. 

      Exports more than it imports

    • B. 

      Must have ample gold reserves

    • C. 

      Cannot have a domestic monetary policy

    • D. 

      Must be running large trade deficits

  • 2. 
    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:
    • A. 

      +0.5%

    • B. 

      -0.5%

    • C. 

      + 16.7%

    • D. 

      +6.5%

  • 3. 
    If country A wants to fix its exchange rate with country B, then:
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

      All of the answers given are correct

  • 4. 
    International capital mobility:
    • A. 

      Contributes to the rigidity of exchange rates

    • B. 

      Contributes to the equalization of expected returns across countries

    • C. 

      Eliminates arbitrage opportunities

    • D. 

      Makes interest rates equal across countries

  • 5. 
    If the bonds of two different countries are identical, their expected returns will:
    • A. 

      Be equal if capital flows freely internationally

    • B. 

      Always be equal

    • C. 

      Be equal only if the exchange rate between the two countries is fixed

    • D. 

      Be equal only if the inflation rate is the same in each country

  • 6. 
    When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:
    • A. 

      The interest rates on the bonds will be identical

    • B. 

      The prices of the bonds will be identical

    • C. 

      The inflation rates in each country will be identical

    • D. 

      None of the answers provided is correct

  • 7. 
    Which of the following statements is incorrect?
    • A. 

      A country cannot be open to international capital flows, control its domestic interest rate and fix its exchange rate

    • B. 

      A country can be open to international capital flows and control its own domestic interest rate but it can't fix its exchange rate

    • C. 

      A country can be open to international capital flows, control its domestic interest rate, and fix its exchange rate

    • D. 

      A country cannot be open to international capital flows if it expects to control its own domestic interest rate and to fix its exchange rate

  • 8. 
    The United States would be characterized as having:
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

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

  • 9. 
    Which of the following would be an example of a capital outflow control?
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

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

  • 10. 
    If foreigners are restricted in their ability to buy investments in a country then that government is imposing:
    • A. 

      Controls on capital inflows

    • B. 

      Controls on capital outflows

    • C. 

      Controls on both capital inflows and outflows

    • D. 

      Fixed exchange rates

  • 11. 
    If the Fed desired to fix the euro/dollar exchange rate, they would have to:
    • A. 

      Get the European Central Bank to also agree to fixed exchange rates

    • B. 

      Maintain ample reserves of dollars

    • C. 

      Be willing to exchange dollars for euros whenever anyone asked

    • D. 

      Impose capital controls

  • 12. 
    If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros:
    • A. 

      They increase the number of dollars

    • B. 

      Downward pressure is put on domestic interest rates

    • C. 

      The domestic money supply increases

    • D. 

      All of the answers given are correct

  • 13. 
    The focus for most central banks today is:
    • A. 

      The quantity of M1

    • B. 

      Interest rates

    • C. 

      The quantity of M2

    • D. 

      Controlling the size of the money multiplier

  • 14. 
    Most central banks, including the Fed and the ECB, provide discount loans at a rate:
    • A. 

      Equal to the target interest rate

    • B. 

      Below the target interest rate

    • C. 

      Above the target interest rate

    • D. 

      That is equal to the overnight interbank lending rate

  • 15. 
    The ways the Fed can inject reserves into the banking system include:
    • A. 

      An increase in the size of the Fed's balance sheet through purchasing securities

    • B. 

      Increasing the discount rate

    • C. 

      Making loans to non-bank corporations

    • D. 

      An increase in the size of the Fed's balance sheet through selling securities

  • 16. 
    The tools of monetary policy available to the Fed include each of the following, except the:
    • A. 

      Currency-to-deposit ratio

    • B. 

      Discount rate

    • C. 

      Target federal funds rate

    • D. 

      Reserve requirement

  • 17. 
    Which of the following statements is most correct?
    • A. 

      The FOMC sets the federal funds rate

    • B. 

      The discount rate is the primary policy tool of the FOMC

    • C. 

      The FOMC sets the target federal funds rate

    • D. 

      The difference between the target and actual federal funds rate is the dealer's spread

  • 18. 
    Which of the following would be categorized as an unconventional monetary policy tool?
    • A. 

      Discount window lending

    • B. 

      Lending to nonbanks

    • C. 

      Federal funds rate target

    • D. 

      Deposit rate

  • 19. 
    If the market federal funds rate were below the target rate, the response from the Fed would likely be to:
    • A. 

      Raise the required reserve rate

    • B. 

      Purchase U.S. Treasury securities

    • C. 

      Sell U.S. Treasury securities

    • D. 

      Raise the discount rate

  • 20. 
    If the current market federal funds rate equals the target rate and the demand for reserves decreases, the likely response in the federal funds market will be:
    • A. 

      The market federal funds rate will decrease

    • B. 

      The market federal funds rate will equal the target rate

    • C. 

      The market federal funds rate will increase

    • D. 

      Nothing; the Fed would act immediately and the market would not be affected

  • 21. 
    One reason the target federal funds rate may not equal the actual federal funds rate is because:
    • A. 

      There is no way that the Fed could keep the actual rate at the target rate

    • B. 

      The target rate changes with the demand for reserves

    • C. 

      Attaining the target rate involves forecasting reserve demand and forecasts are subject to error

    • D. 

      None of the answers is correct; the target and the actual federal funds rates are always equal

  • 22. 
    Discount lending ties into the Fed's function of:
    • A. 

      Lender of last resort

    • B. 

      Open market operations

    • C. 

      The government's bank

    • D. 

      Regulation of banking

  • 23. 
    The Fed will make a discount loan to a bank during a crisis:
    • A. 

      No matter what condition the bank is in

    • B. 

      Only if the bank is sound financially and can provide collateral for the loan

    • C. 

      But if the bank doesn't have collateral the interest rate is higher

    • D. 

      Only if the bank would fail without the loan

  • 24. 
    The types of loans the Fed makes consist of each of the following, except:
    • A. 

      Primary credit

    • B. 

      Conditional credit

    • C. 

      Seasonal credit

    • D. 

      Secondary credit

  • 25. 
    Secondary credit provided by the Fed is designed for:
    • A. 

      Banks who qualify for a lower interest than what is available under primary credit

    • B. 

      Banks that are in trouble and cannot obtain a loan from anyone else

    • C. 

      Banks that want to borrow without putting up collateral

    • D. 

      Foreign banks

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