Question

53. Which of the following is the Fed’s most important policy interest rate? (a) federal funds rate; (b) the rate on 2-year Treasury notes; (c) the rate on 10-year Treasury notes; (d) the rate on 30-year fixed-rate mortgages.

54. In which market would a bank with excess reserves attempt to sell reserves to a bank with insufficient reserves? (a) Treasury bill market? (b) federal funds market; (c) bond market; (d) NASDAQ.

55. When compared with monetarist theory, Keynesian theory places greater emphasis on: (a) changes in supply of money as a determinant of GDP and inflation; (b) totally discounts the role of monetary policy in determining GDP and inflation; (c) fiscal policy as a determinant of money supply (d) changes in interest rates as a prerequisite to GDP growth and inflation.

56. Over time, the flattening and shifting inward of the traditional Phillips Curve suggests that: (a) the relationship between inflation and unemployment is stronger than ever; (b) a 1% change in the inflation is now associated with smaller changes than before in the unemployment rate; (c) every unemployment rate is now associated with a lower inflation rate than previously; (d) the U.S. now has an R* much higher than 1%.

57. According to the modern Phillips Curve, current inflation statistically is the summation of: (a) the real inflation rate and inflation expectations; (b) the previous period’s inflation and the product of short-run real economic growth and the sensitivity of inflation to it; (c) productivity growth and growth in the labor force; (d) labor compensation and productivity growth.

58. Almost always, the normal Treasury yield curve tends to: (a) be unaffected by monetary policy; (b) be monotonically upward sloping; (c) demonstrate that as time to maturity increases, expected yields tend to decline: (d) be affected by inflation expectations.

59. All things remaining the same, the yield on a five-year Treasury note can be expected to revert to which level? (a) the Fed’s 2% inflation target; (b) the level of inflation expectations over a 5-year period; (c) the average expected yield on Treasury securities 1, 2, 3, 4, and 5 years from maturity; (d) the S&P 500 dividend yield.

60. Which of the following is NOT a lesson to draw from the work of the Federal Reserve under Chairman Volcker when combatting stagflation? (a) fiscal policy is a critical complement to monetary policy when fighting high inflation rates; (b) choking off the supply of bank reserves can strangle money supply growth; (c) the process of strangling money supply growth reduces inflation expectations and eventually brings down long-term interest rates; (d) lower long-term interest rates would help to stimulate demand for the most interest-rate sensitive components of the economy.

61. In response both to Great Financial Crisis and the Covid-19 Crisis, the Federal Reserve: (a) performed reverse repurchase agreements daily; (b) engaged in permanent open market operations that expanded the Fed’s asset holdings; (c) sold Treasury securities and sold mortgage-backed securities; (d) increased its federal funds target range to between 2.00% and 2.25%.

62. The possibility that even a relatively or seemingly minor event somewhere in the world could spread and disrupt the entire real economy is known as: (a) operational risk; (b) credit risk; (c) a liquidity trap; (d) systemic risk.

63. A key function of microprudential supervision is to uncover: (a) the most effective monetary policy tools; (b) banking practices that jeopardize the safety and soundness of the financial system; (c) digital threats to the real economy; (d) obsolete international agreements hampering the U.S. banking system.

64. Development of new housing tracts in New Mexico is counted in GDP under: (a) personal consumption expenditures for durable goods; (b) personal consumption expenditures on housing services; (c) gross private domestic investment; (d) business fixed investment.

65. The Federal Open Market Committee of the Fed consists of: (a) the 7 members of the Board of Governors; (b) the Presidents of the 12 Federal Reserve Banks; (c) the 7 Governors and 12 Presidents; (d) the 7 Governors, the 12 Presidents and the Secretary of the Treasury.

Answer 1

Question- . Which of the following is the Fed’s most important policy interest rate?

Answer- The correct answer is Option A that is federal funds rate, as because federal funds rate is used to control inflation.

When federal funds rate is lower is helps banks to borrow funds/money at a lower interest rate Which benefit the customers by low priced mortgages and other loans which encourages a healthy economic growth.

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