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Study Resources (Statistics)

  102. What are the cost and benefits to a country instituting capital controls?          103. Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the money supply in the U.S. if the euro started to decline in value and why?          104. Everything else equal, if the.
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    61. A country with a fixed exchange rate policy that is experiencing an economic slowdown will find: A. Their central bank will reduce the domestic interest rate in order to fend off the slowdownB. Their currency will depreciate to stimulate exportsC. Their bonds will become less attractive to foreign investorsD. The stabilization mechanism that policy makers.
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  98. Explain why the central bank of a country that has fixed its exchange rate would not find discussions of inflation on the agenda of its policy meetings?          99. Capital flows freely between two countries and the countries have fixed exchange rates. The treasury bonds of each country have similar maturities but different.
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    41. The impact on the foreign exchange market for dollars resulting from the Fed selling euros will be: A. A decrease in the demand for dollarsB. A decrease in the supply of dollarsC. An increase in the supply of dollarsD. A decrease in the interest rate in the U.S.   42. If interest rates in the U.S. increases relative.
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    11. In the short run, a country's exchange rate is determined by: A. Monetary policyB. Purchasing power parityC. The domestic inflation rateD. Supply and demand   12. International capital mobility: A. Contributes to the rigidity of exchange ratesB. Contributes to the equalization of expected returns across countriesC. Eliminates arbitrage opportunitiesD. Makes interest rates equal across countries   13. If the bonds of two different countries are identical,.
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    71. For the Fed to use money growth as a direct monetary policy target, which of the following needs to exist? A. A highly variable deposit expansion multiplierB. A stable link between the monetary base and the quantity of moneyC. A predictable relationship between the quantity of money and the rate of inflationD. A stable link.
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  93. If the Fed wanted to target price stability, meaning zero inflation, why should it set a target rate of inflation of around one percent?          94. The CPI is a commonly used and closely watched measure of inflation. However, it has limitations. What are they?          95. If the price of money is determined by supply.
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    21. Most economists view capital controls: A. UnfavorablyB. Unfavorably, emphasizing their harmful effects on developing countriesC. Favorably, since this is the main way for countries to exploit their comparative advantageD. Favorably, since having them makes capital markets more efficient   22. Capital controls: A. Can be controls on capital inflowsB. Can be controls on capital outflowsC. Can be controls on capital inflows or.
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    Short Answer Questions  96. In 2001, the FOMC lowered the target federal funds rate eleven times, cutting the rate from 6½ percent to 1¾ percent. Why didn't the Fed just cut the rate by larger amounts early on?          97. State and briefly define the tools of monetary policy available to the Federal Reserve.          98. Why is.
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127. What were the 3 unconventional policy approaches used by the Fed during the financial crisis of 2007-2009?          128. How do policy duration commitments influence the economy and inflation?          129. How does credit easing alter the outlook for the economy and inflation?              .
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    41. When nominal interest rates are high, the velocity of money should: A. Be lowB. Also be highC. Not change; the velocity of money does not vary with the interest rateD. Decrease by the same percent that the nominal interest rate has increased   42. In the late 1970s and early 1980s, the velocity of money increased significantly. The.
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  115. Discuss why the Fed can either select a quantity or a price (interest rate) target but not both. If it helps, you can use the market for reserves for an example.          116. Consider the desirable features of monetary policy operating instruments and the use of intermediate targets. What missing feature makes a.
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Multiple Choice Questions  1. History proves that: A. Countries with low rates of money growth have high rates of inflationB. Money growth and inflation are not relatedC. Countries with high rates of money growth have high rates of inflationD. Money growth rates equal inflation rates   2. Economic researchers have found: A. No examples of countries with high rates of money growth.
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    71. If the U.S. were to revert to a gold standard, trade deficits would: A. Result in gold reserves in the U.S. increasingB. Result in higher domestic interest ratesC. Quickly disappearD. Result in high inflation   72. Which of the following best completes the sentence; "Under a gold standard a central bank ¼"? A. Can have too much goldB. Can have too.
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  108. What should be the impact on the U.S. interest rates if the Fed undertakes a sterilized foreign exchange intervention? Be sure to explain your answer.          109. What separates a sterilized foreign exchange market intervention from an unsterilized intervention?          110. A sterilized intervention is actually a combination of two transactions. What are they and what.
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    81. In the spring of 2005, people in business and government were calling for China to move away from its fixed-exchange rate regime because: A. Its pegged value was far below purchasing power parity estimatesB. Its pegged value was far above purchasing power parity estimatesC. It was adding to China's current account deficitD. It was exporting.
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  132. Imagine the inflation rate begins to rise rapidly, the FOMC meets and it is believed that the target interest rate needed to stem the inflation could easily exceed 20 percent. Many members of the committee believe the Fed cannot announce this high of a target for political reasons. Discuss what.
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  105. Discuss the evolution of discount lending from a tool of monetary policy to its current role.          106. Since 2002, the Fed has set the primary discount rate at 100 basis points above the target federal funds rate. Why is this likely to prevent the spikes in the market federal funds similar to.
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  118. What were the reasons for selecting the U.S. dollar as the currency to which the other 43 countries agreed to peg their currencies as part of the Bretton Woods System?          119. What are the pros and cons of a currency board?          120. What are the main costs to a country that adopts dollarization?              .
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    51. A foreign exchange intervention that does not alter the domestic monetary base is: A. SterilizedB. UnsterilizedC. Likely to change domestic interest ratesD. Impossible   52. Which of the following statements is most correct? A. A sterilized foreign exchange intervention will alter the composition of a central bank's assets and alter commercial bank reservesB. A sterilized foreign exchange intervention will not alter.
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    61. People have a portfolio demand for money in part because: A. Money is part of a well diversified financial portfolioB. The return on money is often higher than other financial assetsC. Money is needed to pay brokerage commissionsD. There is no cost to holding money which gives it a relatively high return   62. As a person's wealth.
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  111. Explain the three desirable features of a good monetary policy instrument.          112. In terms of desirable features of a monetary policy instrument, explain why the size of the staff at the Fed is not a good policy instrument. Be sure to address which feature(s) it fits and which one(s) it doesn't.          113. The Fed.
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    Short Answer Questions  95. While it is true that central banks of many countries intervene in the foreign exchange market, why wouldn't it be correct to say that central banks of these countries fix the exchange rates?          96. Imagine the exchange rate between the British pound (?) and the U.S. dollar ($) is fixed.
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  115. How can irresponsible fiscal policy contribute to a speculative attack on a country's currency that is fixed in value to another currency?          116. What are the general conditions under which a fixed exchange rate makes sense for a country?          117. How did the gold standard contribute to the spreading of the Great Depression of.
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  108. If we consider the relationship between the opportunity cost of holding money and velocity that existed in the 1980s, if the Fed followed the same policymaking in the 1990s, would they have achieved the desired results? Explain.          109. What factors can cause the portfolio demand for money to increase?          110. Is variability in velocity.
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  125. Completely flexible exchange rates are fairly self-explanatory, and hard pegs include dollarization and currency boards. These seem to be the extremes. Why do you think soft pegs are never used?          126. What were the contributing factors that led to Argentina's initial adoption of a currency board and then its subsequent failure?          127. Compare the.
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  102. Is discount lending used to keep banks from failing? Explain.          103. Discuss why the discount rate may be considered a penalty rate of interest charged to banks.          104. Discuss the differences between permanent and temporary open market operations and the instruments the FOMC uses for each.              .
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Multiple Choice Questions  1. Within the United States, every city has: A. A fixed exchange rate with every other cityB. A floating exchange rate with every other cityC. An independent monetary policyD. Their own currency board   2. If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country: A. Exports.
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    51. The interest rate earned on money holdings is: A. The nominal interest rateB. The nominal interest rate less the rate of inflationC. The real interest rate less the rate of inflationD. Zero   52. All other factors equal, as nominal interest rates decrease, checking account balances should: A. IncreaseB. DecreaseC. Remain constantD. Be converted to cash   53. If you were going to write a function.
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  105. Using demand and supply analysis, explain why the euro/dollar exchange rate rises (the dollar appreciates) if the Fed intervenes in the foreign exchange market and sells euros.          106. Are foreign exchange market interventions the only tool available to a central bank to change the exchange rate? Explain.          107. How would the impact on the.
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  104. Why do people hold money? Explain the reasons.          105. In what ways have financial innovations affected the demand for money?          106. Explain why "free" checking accounts are not really free.          107. What would the portfolio demand for money look like if it were graphed on a set of axes? What would each axis represent?              .
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    81. The Taylor rule is: A. The monetary policy setting formula followed explicitly by the FOMCB. An approximation that seeks to explain how the FOMC sets their targetC. An explicit tool used by the ECB but not the FedD. A rule adopted by Congress to make the Fed's monetary policy more accountable to the public   82. The components.
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  118. We saw in Chapter 18 that many central banks have turned to a policy framework of inflation targeting. Discuss if this would be effective in a country experiencing deflation.          119. Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.          120. Is the Taylor rule.
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  Short Answer Questions    89. Why does the Fed have to be concerned with money growth even though their main focus seems to be on interest rates?          90. When the former Soviet Union collapsed in 1990, most of the countries that made up the union experienced extremely high rate of inflation? What was the source.
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  124. Given the following Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap);Since the coefficients on the inflation and output gaps are equal, does this mean the central bank will respond to a one percent increase in inflation with the same change in the.
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  97. Irving Fisher derived the quantity theory of money from the equation of exchange. What two assumptions did he make to derive the theory and what is the basic assertion of the theory?          98. Professor Milton Friedman stated that "inflation is a monetary phenomenon." What did he mean by this statement and what.
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  112. What are the risks to a country of fixing its exchange rate to that of another country?          113. Describe the automatic stabilizers that are lost to a country that fixes its exchange rate to another currency.          114. What makes countries with fixed exchange rates prone to speculative attacks? Why don't the central banks of.
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    31. Adding international reserves for a central bank: A. Increases the central bank's liabilities and assets.B. Decreases the central bank's assets and liabilities.C. Increases the central bank's assets but decreases its liabilities.D. Increases the central bank's liabilities and decreases its assets.   32. If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros: A. They increase.
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      Essay Questions  123. If a country has a flexible exchange rate, will high rates of inflation, though generally harmful, price this country's goods off world markets? Explain.          124. You live in a small country that suffers constantly from high and variable rates of inflation. You are quite sure it has something to do with.
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    81. Statistical analysis reveals that the long-run money velocity (for euro-area M3, which is equivalent to U.S. M2): A. Is unstable in the euro similar to the instability that exists in the U.S.B. Is much more stable in the U.S. than in the euro areaC. Has increased in the euro area since 1980D. Is more stable.
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