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Question 01

Which of the following choices is an objective of monetary policy as opposed to being an instrument or a target?

a) Long-term market interest rates

b) Bank refinancing rates

c) Price stability

d) Exchange rates

Question 02

Which of the following is not a target of monetary policy?

a) Monetary aggregates (M1, M2, M3...)

b) Exchange rates

c) Repo and discount rates

d) Long-term market interest rates

Question 03

In the two figures opposite we see the same demand for nominal money but two different supplies of nominal money, corresponding to different monetary policies. As drawn above we can conclude that:

a) the interest rate is endogenous on the left and the money supply is endogenous on the right, holding the price level constant in both diagrams.

b) the money supply is endogenous on the left and the interest rate is endogenous on the right, holding the price level constant in both diagrams.

c) the price level is endogenous on the left and the interest rate is endogenous on the right, holding the quantity of money constant in both diagrams.

d) the price level is endogenous on the left and the money supply is endogenous on the right, holding the real rate of interest constant in both diagrams.

Question 04

The monetary base is what?

a) The sum of currency in circulation and commercial bank reserves.

b) The sum of currency in circulation and the currency held by commercial banks.

c) The sum of gold and foreign exchange held by the central bank.

d) The sum of real assets of the banking sector plus its net worth.

Question 05

How do commercial banks differ from savings banks?

a) Commercial banks are financial intermediaries whereas savings banks collect funds from depositors to lend them to borrowers.

b) Commercial banks are regulated.

c) Liabilities of savings banks serve as a reserve medium of exchange.

d) Deposits of commercial banks serve as a circulating medium of exchange.

Question 06

Open market operations usually take the form of a (A) _________ from the central bank to commercial banks, but can also involve purchases and sales of (B) _________ .

a) (A) money order; (B) reserves.

b) (A) government deficit; (B) short-term loans.

c) (A) transfer payment; (B) commodities.

d) (A) short-term loan; (B) assets.

Question 07

Which of the following is the correct ordering of ECB interest rates?

a) Deposit facility rates > The interbank rate EONIA > Marginal lending facility rates

b) The interbank rate EONIA > Marginal lending facility rates > Deposit facility rates

c) Deposit facility rates > Marginal lending facility rates > The interbank rate EONIA

d) Marginal lending facility rates > The interbank rate EONIA > Deposit facility rates

Question 08

Suppose the central bank of an economy uses $X mio of its foreign exchange reserves to support the exchange rate of its currency. This transaction (A) _________ the monetary base by $X mio. In order to sterilize this foreign exchange market intervention the central bank could (B) _________ $X mio worth of government bonds.

a) (A) reduces; (B) buy

b) (A) increases; (B) buy

c) (A) reduces; (B) sell

d) (A) increases; (B) sell

Oxford University Press, Online Resource Centre, Chapter 09.

Chapter 09

Instructions