Chapter 15 – Central Banks in the World Today
Multiple Choice Questions
1. The central bank in the United States is:
D. The Bank of the United States
2. The number of central banks that exist in the world today is:
A. Less than 10
3. One monopoly that modern central banks have is in:
A. Regulating other banks
Chapter 15 – Central Banks in the World Today
4. In the U.S. the right to issue currency is held by:
D. The U.S. Mint
5. Monetary policy in the United States is under the control of:
A. The U. S. Treasury
6. The ability to print money means the central bank can control:
D. Government expenditures
Chapter 15 – Central Banks in the World Today
7. Which of the following statements are true?
D. In the modern economy the amount of money printed has no effect on prices
8. Many governments give their central bank control over issuing currency because:
D. The only way to distribute currency to banks is through the central bank
D. Managing the payments system
Chapter 15 – Central Banks in the World Today
10. The central bank has the ability to print money; this means it:
A. Can control the availability of money but not the availability of credit in the economy
11. The stability of the financial system is enhanced by the ability of central banks to:
D. Convert poorly run banks into branches of the central bank
12. In 2009, the average daily volume on the Federal Reserve’s Fedwire system was:
A. $25 billion
Chapter 15 – Central Banks in the World Today
13. The Federal Reserve’s Fedwire system is used mainly to provide:
D. A means for the Treasury to collect tax payments
14. History has shown us central banks:
A. Have always prevented financial crisis
15. Which is a function of modern central banks?
A. To control securities markets
Chapter 15 – Central Banks in the World Today
16. The rationale for the existence of central banks is mainly that:
A. Financial systems are inherently stable
D. A stable exchange rate
18. The specific goals of central banks include each of the following, except:
A. High and stable real growth
Chapter 15 – Central Banks in the World Today
19. The goals of central banks are to:
D. Keep inflation rates high
20. Central banks often find:
D. They must keep their goals secret or else they cannot be attained
21. The primary objective of most central banks in industrialized economies is:
Chapter 15 – Central Banks in the World Today
22. If prices are not stable:
D. Prices become highly useful for conveying information
23. Which of the following is the best analogy? Inflation is like:
A. A pound having more ounces
24. The efficient allocation of resources requires:
D. Prices to remain constant
Chapter 15 – Central Banks in the World Today
25. Which of the following statements is most accurate?
D. As the inflation rate increases, inflation becomes more stable
26. Stable inflation implies:
A. That the rate of inflation averaged over many years is zero(0)
27. The correlation between high rates of inflation and economic growth is:
D. Is direct at low rates of economic growth and inverse at high rates
Chapter 15 – Central Banks in the World Today
28. Most economists agree that the target rate of inflation for the central banks should be:
A. Between 7 and 9 percent
29. The problem for a central bank setting a zero inflation policy would be:
A. The risk of high employment
30. Higher than expected inflation will increase the:
D. Real interest rates both paid on mortgages and earned on CDs
Chapter 15 – Central Banks in the World Today
31. The main problem from inflation as seen by most economists is:
A. Inflation raises prices more than wages
32. In terms of economic growth, the central bank would like to:
A. Have the maximum growth rate possible
33. Potential output depends on all of the following except:
D. The number of people who can work
Chapter 15 – Central Banks in the World Today
D. 7 percent per year
35. 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
36. Which of the following statements is not true?
D. Periods of growth below the potential level are periods of high unemployment
Chapter 15 – Central Banks in the World Today
37. The consequences of an economy operating below its potential level include:
38. All of the following are consequences of an economy operating above its potential level
except:
A. High rates of inflation
39. Which of the following statements regarding growth was brought out from the material in
Chapter 15?
D. The more volatile the growth rate, the higher is the annual output growth
Chapter 15 – Central Banks in the World Today
40. At a growth rate of 6% an economy will double in size in:
41. Since the Federal Reserve was created, it has:
42. The focus of central banks in terms of financial market stability is:
D. Idiosyncratic risk
Chapter 15 – Central Banks in the World Today
43. Keeping interest rates stable is:
A. The most important goal for a central bank
44. Interest rate volatility is a problem because:
D. Financial decisions become less difficult when interest rates are more volatile
45. Central banks are in a position to control risk in the economy because they:
A. Control the unemployment rate
Chapter 15 – Central Banks in the World Today
D. Europe
47. Which of the following would give the most importance to the goal of exchange rate
stability?
A. Small, less developed, trade-oriented countries
48. 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
Chapter 15 – Central Banks in the World Today
49. Successful monetary policy relies most on:
A. Having an ample supply of highly qualified people
50. Most economists agree that a well-designed central bank would:
D. Be run by one key policy maker
51. General agreement among economists finds that they believe monetary policy is more
effective when it is formed:
A. By an individual rather than a committee
Chapter 15 – Central Banks in the World Today
52. The idea that central banks should be independent of political pressure is an idea that:
D. Became quite popular in the early 1900s
53. To be independent, a central bank must have:
D. The chairperson serve as a member of the President’s cabinet
54. The operational components required for truly independent central banks include:
A. A budget controlled by Congress
Chapter 15 – Central Banks in the World Today
55. The interest rate decisions made by the Federal Open Market Committee:
A. Can be overridden by the President
D. Central bankers have a short-run focus that usually corrects problems faster
57. Compared to an independent central bank, elected officials are likely to:
A. Favor long-run stability over short-term prosperity
Chapter 15 – Central Banks in the World Today
58. Empirical research seems to verify that:
D. The rate of inflation seems to vary directly with the amount of central bank independence
59. In the United States, monetary policy is formed by:
D. The Chairman of the Federal Reserve and can only be overturned by the presidents of the
Regional Federal Reserve Banks
60. Most central banks of industrialized countries have monetary policy formed by:
A. An individual, usually the minister of finance