Test 2- Chapter 5-Monetary Policy

Question 1

What are the three types of monetary policy?

Answer 1

neutral, stimulative, restrictive

Question 2

Which one of the three types of monetary policy does this describe “maintain growth, inflation, jobs as is. no change in rates”

Answer 2

neutral

Question 3

Which one of the three types of monetary policy does this describe “corrects a weak economy by reducing Fed Funds target rate, the discount rate, and open market purchase which all lower interest rates in order to boost GDP and job growth”

Answer 3

stimulative

Question 4

Which one of the three types of monetary policy does this describe “corrects high inflation by increasing the Fed Funds target rate, the discount rate, having open market sales. these all raise interest rates to slow GDP, slow job growth, and reduce inflation”

Answer 4

restrictive

Question 5

What are the limitations of monetary policy?

Answer 5

Credit Crunch (banks don't want to lend)
consumers don't want to borrow/ spend
policy over/under stimulates/restrains

Question 6

There are Monetary Policy complications, there are three different kinds of?

Answer 6

time lags

Question 7

Which Lag does this describe “time between problem arising and being recognized (by the time the Fed knows were in recession, we’re already in a recession) reacting to a problem when we already have the problem”

Answer 7

recognition lag

Question 8

Which lag does this describe “time between recognizing a problem and Fed taking action (could be a week, month, or several months)”

Answer 8

implementation lag

Question 9

Which lag does this describe “time after Fed action for policy to have full effect on economy”

Answer 9

impact lag

Question 10

Bond prices and bond yield have what kind of relationship?

Answer 10

inverse

Question 11

When the interest rate goes up, bond prices?

Answer 11

go down

Question 12

When bond prices go up, interest rates go?

Answer 12

down

Question 13

In the next few years bond prices will likely go?

Answer 13

down

Question 14

Are long-term or short-term bonds more susceptible to rate increases right now?

Answer 14

long-term

Question 15

What term does this describe” used by the Fed, analysts, and market participants to assess the health of the economy”

Answer 15

economic indicators

Question 16

What term does this describe:

rate of interest that banks charge their most credit worthy customers (usually bigger firms)

Answer 16

prime rate of interest

Question 17

In order to get the prime rate of interest, companies have to be in ______ financial shape.

Answer 17

good

Question 18

The prime rate of interest is the interest rate for

Answer 18

loans or credit

Question 19

_________ banks set their own prime rates

Answer 19

individual

Question 20

Do most banks usually choose roughly the same prime rate

Answer 20

yes

Question 21

The prime rate generally follows Fed policy which means it follows the _____ ______ rate or the T-bill rate.

Answer 21

Fed Funds

Question 22

Most normal customers get charged the prime rate plus some risk factor, what is the name of this interest rate?

Answer 22

subprime

Question 23

The fiscal policy has to do with what two aspects?

Answer 23

taxes and spending

Question 24

Who is responsible for fiscal policy

Answer 24

president and congress

Question 25

If taxes are lowered, then there is ________ spending, which stimulates the GDP

Answer 25

increased

Question 26

If taxes are increased, then there is ________ spending, which slows the GDP

Answer 26

decreased

Question 27

Both president and congress must sign off on a yearly ______

Answer 27

budget

Question 28

Sometimes the budget is used to ______ economy

Answer 28

stimulate

Question 29

There’s many ___________ in how much to spend and who should be taxed

Answer 29

deficiencies

Question 30

We have a budget deficit when spending is ________ than tax revenues.

Answer 30

greater

Question 31

We have a budget surplus when spending is _______ than tax revenues.

Answer 31

smaller

Question 32

Our federal government usually runs a ?

Answer 32

deficit

Question 33

What is the governments primary form of getting money?

Answer 33

issuing bonds, T-bills and T-notes

Question 34

If we have high inflation, our dollar value ______.

Answer 34

falls

Question 35

If the dollar is weaker against the euro, it costs us _____ to buy things from Europe

Answer 35

more

Question 36

When the US dollar is weak, even though we don’t rely on tourism, is tourism increased or decreased?

Answer 36

increased

Question 37

There is an impact of global economics, if world growth is slow, then US policy is more or less effective

Answer 37

less

Question 38

the transmission of interest rates either attracts or deters foreign investments. If our rates get higher, our economy looks ______ attractive to foreign investors.

Answer 38

more

Question 39

Due to the anticipation that rates are likely to go up, money has _______ out of emerging markets.

Answer 39

moved

Question 40

The problem with virtual currencies is they are not issued or backed by ________

Answer 40

government

Question 41

Virtual currencies are clearly cheaper for the

Answer 41

merchants

Question 42

Virtual currencies are subject to money laundering/illegal use and are ______ volatile in pricing.

Answer 42

highly

Question 43

What is the result of a stimulative monetary policy on the Fed Funds rate?

Answer 43

lowers the Fed Funds rate

corrects a weak economy

Question 44

The time it takes for a Fed policy to affect the economy is known as

Answer 44

the impact lag

Question 45

Are decreasing interest rates good or bad for bondholders?

Answer 45

good, coupon will be the same, price will go down, and you will make money

Question 46

How might the budget deficit be related to “crowing out”?

Answer 46

The government is borrowing more, therefore the pool of loanable funds decreases, which exemplifies crowding out.