1. Monetary policymakers could keep equity and property price bubbles from developing by:

a- lowering their interest rate target when they suspect a bubble.

b- raising their interest rate target when they suspect a bubble.

c- purchasing U.S. treasury securities to drive up their prices.

d- expanding the money supply in the economy.

2. Stock prices may rise from a reduction in interest rates because:

a- the present value of future earnings will decrease.

b- the present value of future earnings will increase.

c- financial market participants are less optimistic about future earnings.

d- stockholders will expect lower future earnings.

3. The importance of the bank-lending channel of monetary policy transmission:

a- becomes more important the more important banks are as a source of funds for firms and individuals.

b- is likely to become more important with the growth of loan brokers and asset-backed securities.

c- has become more important as technology has solved the problems of information and moral hazard.

d- none of the answers given is correct.

4. When central bankers are acting preemptively they are:

a- letting markets work and taking a wait and see approach.

b- usually focused on reducing expansionary gaps.

c- taking bold steps to stabilize the economy.

d- aggressively trying to hit a zero inflation target.

5. The balance-sheet channel of monetary policy works because it can:

a- increase a borrower's asset value but not the burden of his/her liabilities.

b- change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth.

c- increase a borrower's assets and reduce the cost of his/her liabilities.

d- none of the answers given is correct.

6. Bonds must have positive yields because:

a- the banking technology does not exist to deal with negative yields.

b- people can always hold cash.

c- the U.S. treasury guarantees all bonds to have a positive yield.

d- all of the answers given are correct.

7. Which of the following statements would you say best reflects monetary policy?

a- There is certainly some science involved, a lot of understanding that is needed, but a lot of uncertainty still remains.

b- It is a lot like gambling because the outcomes are most of the time uncertain.

c- It is a hard and fast science.

d- It is a hard and fast science.