Chapter 15 – Central Banks in the World Today
61. In the United States, one problem with central bank independence is:
D. The central bank can control policy, but the U.S. Treasury issues currency
62. Central bank accountability means:
D. Central bankers must hold press conferences to explain their monetary policy views
63. During the financial crisis of 2007-2009 the US Federal Reserve used its powers in all but
which of the following ways:
A. lending to nonbanks
Chapter 15 – Central Banks in the World Today
64. In a survey of forecasters toward the end of the financial crisis of 2007-2009, forecast
D. 7%
65. To say monetary policy is transparent implies:
A. That anyone could figure out what the correct policy should be
66. The means for assuring accountability and transparency:
D. Are opposite to each other; increasing one means decreasing the other
Chapter 15 – Central Banks in the World Today
67. In the United Kingdom accountability and transparency for its central bank is achieved by
setting:
A. A numerical target for unemployment each year
68. The central bank for the European Union tries to achieve accountability and transparency
through a:
A. Specific inflation target
69. Setting an explicit numerical inflation target is most associated with the goal(s) of:
A. Transparency
Chapter 15 – Central Banks in the World Today
70. In the United States, the Federal Reserve is asked to:
A. Deliver on a specific inflation target set by Congress
71. Today, most central banks announce their policy actions:
D. Usually six months after the policy is put in place
D. Changed so that now the Fed does not release its decisions publicly
Chapter 15 – Central Banks in the World Today
73. One reason given for more central bankers releasing its decisions publicly is:
A. For monetary policy to work, people must be taken by surprise
74. Which of the following statements is most accurate?
A. Central bank statements in developed countries are similar both in length and in the speed
with which policy changes are announced
75. The monetary policy framework is:
A. The Law that created the Federal Reserve System
Chapter 15 – Central Banks in the World Today
76. One reason for having a monetary policy framework is:
D. It can make goal setting vague enough so that the central bankers can always claim success
77. One use of a monetary policy framework is to clarify all of the following except:
A. The likely response when policy goals are in conflict with one another
78. One problem for the Federal Reserve regarding setting policy stems from the fact that:
D. The membership of its governing board changes so often
Chapter 15 – Central Banks in the World Today
79. Beginning in June of 2004 and for the next eleven months, the Federal Reserve:
D. Kept the target interest rate constant
80. Federal Reserve monetary policy during 2004 showed that:
A. Monetary policy is always stable
81. Whenever central bankers face more than one goal, the policy framework requires:
A. The central bank to always focus on inflation first
Chapter 15 – Central Banks in the World Today
82. The ability to control inflation expectations is most closely related to a central bank’s:
D. Willingness to communicate
83. One thing that is true about economic policy in the U.S. is:
D. Fiscal policy ultimately controls monetary policy since Congress can control the Fed’s
budget
84. Which of the following statements is most true concerning economic policy in the U.S.?
D. Monetary policy is not independent of fiscal policy because Congress ultimately oversees
both
85. For fiscal policymakers, one of the results of an independent central bank is:
A. To finance government spending the Treasury has to order more currency from the central
86. Fiscal policymakers may actually welcome some inflation for all of the following reasons
except:
A. It potentially raises tax revenues
87. If a government were to find that it cannot raise taxes any further, and that it cannot
D. Can decrease the amount of money in circulation
Chapter 15 – Central Banks in the World Today
88. The autonomy of modern central banks means that governments cannot increase their
spending by:
A. Raising taxes
89. All of the following are true about central bank independence except that it:
A. Is usually given at the pleasure of governments
Short Answer Questions
90. If we look back in history, why has the role of creating money fallen to central banks?
Chapter 15 – Central Banks in the World Today
91. If governments operated like businesses, meaning their goal was to maximize profits, why
would they likely never give up the power to print money to any other institution?
92. If we think back to Chapter 11 where we discussed moral hazard, discuss how a
government ceding the right to control the amount of currency to a central bank is a way to
treat a potential moral hazard problem.
93. What are the three main functions a central bank performs in its role as a banker’s bank?
Chapter 15 – Central Banks in the World Today
94. Explain why it is correct to say the Federal Reserve functions as the government’s bank
but it is incorrect to say it controls the government’s budget.
95. What do modern central bankers not do?
96. What are the specific objectives of most central bankers?
Chapter 15 – Central Banks in the World Today
97. Discuss how the goals of central bankers can be linked to risk and the ability or inability
of individuals to eliminate this risk.
98. Imagine you own a retail mail order business. You produce your catalog, where items and
prices are listed, in January and you use the same catalog all year. The central bank in your
country increases the money supply by an amount to cause inflation to average one percent
each month. Ignoring any seasonality in sales (like the holiday season), what should happen to
your sales as the year progresses and why?