Fed Challenge Review

1: What is the Fed’s preferred measure of inflation?

Asking Ron Paul what he thinks

Personal Consumption Expenditures Deflator

Gross Domestic Product Deflator

Consumer Price Index Deflator

2: What is the current annual rate of inflation, using the Fed’s preferred measure?

About 3.25%

About 2.5%

About -0.5%

About 1%

3: What is the Fed’s (explicit) Dual Mandate?

Full Employment and Exchange Rate Stability

Price Stability and GDP growth

GDP growth and Maximum Happiness

Price Stability and Full Employment

4: What is disinflation?

An increase in the rate of inflation

Consistent, positive inflation

A decrease in the rate of inflation

Consistent, negative inflation

5: How could deflation negatively impact the economy?

Increasing the difficulty of debt payment by increasing the real value of debt

Balloons fall without enough inflation

Imports decrease as a direct result of deflation

It takes more dollars to purchase the same good, causing real wages to fall

6: What is the Fed Funds Rate

The interest rate at which the Fed lends money to depository institutions

The interest rate the Federal Reserve pays to buy US Treasuries

The interest rate the Federal Reserve pays on excess reserves held with the Fed

The interest rate at which depository institutions trade balances in the Federal Reserve System

7: What is the current Fed Funds Rate?

2 - 2.25%

0 - 0.25%

10 - 10.25%

1 - 1.25%

8: How (theoretically) does the Fed’s current interest rate policy impact the exchange rate?

The dollar depreciates as a result of easing policy

There would be no impact from this current interest rate policy

The dollar appreciates as a result of easing policy

The dollar depreciates against only the Japanese Yen

9: Which of the following is an example of sterilization (as it relates to monetary policy)?

Purchasing assets while selling a foreign currency to prevent unwanted deflation

Conducting Open Market Operations with a third-party firm, rather than the U.S. government to prevent direct purchases from the Treasury

Snip, snip

Raising interest rates while conducting Large Scale Asset Purchases to fight inflation

10: What is the size of the Fed’s current asset purchase program?

$25 billion per month, for $1.4 trillion total

About $40 billion per month indefinitely

$10 billion per month, for $300 billion total

About $85 billion per month indefinitely

11: Who is the current chairman of the Federal Reserve?

Ben Shalom Bernanke

Alan Greenspan

Lawrence Summers

Jack Lew

12: Which of the following is NOT a policy instrument of the Federal Reserve?

Reserve Ratio Requirements

Open Market Operations

Manipulating corporate taxes

Federal Funds Rate targeting

13: Which of the following is NOT an example of Open Market Operations?

Selling US Treasuries

Purchasing Mortgage Backed Securities

Purchasing US Treasuries

Adjusting the discount rate

14: What is the difference between U3 and U6 Unemployment Rates?

U3 divides the number of those without work seeking full-time employment by the size of the population, while U6 is U3 plus the discouraged workers rate.

U3 divides the number of those without work seeking full-time employment by the size of the labor force, while U6 is U3 plus the discouraged workers rate

U3 divides the number of those without work seeking full-time employment by the size of the labor force, while U6 is U3 plus the discouraged workers rate, plus the marginally attached workers rate, plus the rate of part-time workers due to economic reason

U3 divides the size of the labor force by the size of the population, while U6 divides the number of employed by the size of the labor force

15: What is the System Open Market Account (SOMA)?

An economic model used to predict the impact of Open Market Operations on the economy

The Fed’s primary research staff for Open Market Operations

A collaborative effort with the US Treasury Department to ease credit conditions following the Financial Crisis

The Fed’s investment portfolio, run by the New York Fed

16: What was the Maturity Extension Program (MEP)?

Operation Twisting Yields

Selling short term bonds and using the revenue to purchase long term bonds

Purchasing long term mortgage backed securities to give homeowners longer to pay back mortgage debt

The Fed shifted its investment portfolio to take advantage of the aging population

17: Why would the MEP theoretically be an improvement over Large Scale Asset Purchases?

By expanding the monetary base more than LSAP, MEP should avoid deflation more effectively

By extending the maturity of the Fed’s balance sheet, MEP should lower interest rates

By not expanding the monetary base, MEP should have no inflationary effects

The extension of QE2 would lower unemployment through the wealth effect

18: Who is always right and never makes mistakes?

All of the Above

The Fed

The Federal Reserve

The US Federal Reserve