1. The dual banking system in the U.S. today refers to:

A. the ability of banks to be either federally or state charted

B. a deposit institution's decision to be either a bank or a savings and loan

C. a bank's ability to issue checking and saving accounts

D. a bank's ability to own another finacial institution

2. Eurodollars are:

A. the currency of European Economic Union

B. Euro-denominated deposits in U.S. banks

C. Dollar-denominated deposits in foreign banks

D. Dollars that are specially printed for use abroad to minimize counterfeiting

3. The Glass-Seagull Act of 1933:

A. required commercial banks to sell off their investment banking operations

B. eliminated the FDIC

C. required federally charted banks to meet the branching restrictions of the states

D. required all state banks to get federal charters

4. Most economists agree that the target rate of inflation for the central banks should be:

A. between 7 and 9 percent

B. less than zero

C. not zero for fears of inflation

D. something over 3 but less than 6 percent

5. One argument for an independent central bank is:

A. Successful monetary policy requires a long time horizon usually well beyond the next election of most public officials

B. without independence competent people would not take a position in a central bank

C. the central bank usually hires more competent individuals that the treasury department or other finance ministries

D. central bankers have a short-run focus that usually corrects problems faster

6. All federal reserve banks play a role in formulation monetary policy by each of the following, EXCEPT:

A. conducting open market operations from their banks

B. partcipating in FOMC meetings

C. participation in setting the discount rate

D. making discount loans

7. The objectives set for the fed by Congress are:

A. very specific; this adds the Fed's accountability

B. by design, quite vague, allowing the Fed to really set its own goals

C. specific regarding inflation, but vague on all other goals

D. specific on the growth rate for the economy, but vague on all other objectives

8. Comparing the European and the U.S. central bank syatems, the National Central Banks that make up part of the European System of Central Banks resembles

A. the U.S. treasury

B. The Board of Governors

C. The FOMC

D. The regional Federal Reserve Banks

9. If the Fed targets the interest rate it will likely lose control of the money supply because of

A. fluctuations in bond prices

B. fluctuations in aggregate supply

C. fluctuations in money demand

D. fluctuations in the reserve requirement

10. The required reserve rate has not been changing since 1992. The Fed is reluctant to this rate because:

A. Changes in the rate have a small impact on the actual quantity of money

B. Changes in the reserve requirement do not affect bank reserves

C. The time lag between changing the required reserve rate and changes in the money supply can be too long

D. Small changes in the required reserve rate can have too big of an impact on the money supply and level of reserves

11. As a tool of monetary policy, the reserve requirement is problematic because:

A. is not controllable

B. its is not observable

C. it is too flexible

D. the impact of changing it is too large

12. Suppose the Fed has a current federal funds rate target of 1% but wishes to achieve a new target of 2%. This requires an open market ____, which will ____ the supply of bank reserves in the banking system

A. sale; decrease

B. sale; increase

C. purchase; decrease

D. purchase; increase

13. An open market purchase of securities bt the central bank from banks will:

A. increase the banks' revenue even if the bank does nothing with the reserves

B. induce the banks to make more loans since their revenue will decrease if they do nothing

C. decrease the amount of deposits in the banking system

D. decrease the banks' willing ness and ability to make loans

14. One of the limiting factors for using monetary policy is:

A. the central banks are limited in their ability to print money

B. central banks are limited in their ability to make loans

C. there is a lower nominal-interest-rate bound of zero

D. the real interest rate cannot fall below zero

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

A. raising their interest rate target when they suspect a bubble

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

C. expanding the money supply in the economy

D. purchasing U.S. treasury securities to drive up their prices

16. Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?