1.When the link between M1, M2, and inflation broke down in the 1980s, many economists argued that the best policy approach was to have an explicit inflation target. The biggest problem with an explicit inflation target is

a.

that it requires perfect foresight on the part of the Federal Reserve because of the lagged impact of monetary policy instruments.

b.

determining what that target should be.

c.

determining which measure of inflation to use.

d.

that it puts too much emphasis on stable prices over other possible goals for monetary policy.

QUESTION 2

1.Federal Reserve notes are considered to be

a.

assets of the Federal Reserve.

b.

liabilities of the US Treasury.

c.

liabilities of the Federal Reserve.

d.

assets of the US Treasury.

QUESTION 3

1.Of the policy tools available to the European Central Bank, the most frequently used are the

a.

discount rates.

b.

open market operations (OMOs).

c.

minimum reserve requirements.

d.

standing lending facilities.

QUESTION 4

1.When the Federal Reserve buys US Treasury securities on the open market, it is attempting to

a.

lower interest rates.

b.

reduce inflation.

c.

raise interest rates.

d.

slow economic growth.

QUESTION 5

1.Alistair tells a friend that he likes to deposit his entire paycheck into his checking account just in case prices fall. This is an example of the __________ demand for money.

a.

speculative

b.

inflationary

c.

transactions

d.

precautionary

QUESTION 6

1.Your good friend Megan is starting a new business and you decide to invest with $20,000. If you get back $2,000, what is your rate of return?

a.

50%.

b.

20%.

c.

5%.

d.

10%.

QUESTION 7

1.Edward would be equally happy with receiving $95 today or $100 one year from today.Edward's friend Bella would be just as happy receiving $90 today or $100 one year from today. Based on this information, which of the following best describes the difference between Edward and Bella?

a.

Bella has a higher rate of time preference than Edward.

b.

Bella is more easygoing about her finances.

c.

Edward has a higher rate of time preference than Bella.

d.

Edward is in more urgent need of money today.

QUESTION 8

1.Banks that have some financial difficulty and borrow from the Federal Reserve in what is known as secondary credit will pay an interest rate equal to the

a.

discount rate.

b.

federal funds rate plus a penalty.

c.

federal funds rate.

d.

discount rate plus a penalty.

QUESTION 9

1.Which of these are among the primary responsibilities of the Federal Reserve?

a.

Conducting monetary policy and acting as the fiscal agent of the US Treasury

b.

Repaying the federal government debt and enforcing financial market regulations

c.

Repaying the federal government debt and setting market interest rates

d.

Conducting monetary policy and printing US currency

QUESTION 10

1.When the Federal Reserve makes a loan at the discount window to a bank, which of the following will happen?

a.

Itwill increase bank reserves but have no effect on the monetary base.

b.

It will increase bank reserves and immediately lower the interest rate.

c.

It will increase bank reserves and decrease the monetary base.

d.

It will increase bank reserves and increase the monetary base.