1. Consider the market for reserves and the overnight interest rate. What happens when the Central Bank decreases the lending rate?
   1. The overnight interbank rate always goes up
   2. The overnight interbank rate is likely to go up depending on the initial market equilibrium
   3. The overnight interbank rate always goes down
   4. The overnight interbank rate is likely to go down depending on the initial market equilibrium
2. What is the economic rationale behind the fact that the supply curve becomes infinitely elastic when the overnight interbank interest rate (i) exceeds the lending rate (i_l)?
   1. Banks would only borrow from the Central Bank
   2. Banks would only borrow from other banks, and not from the Central Bank
   3. Banks would deposit their complete excess reserves only at the Central Bank
   4. Banks would lend their excess reserves to other banks and would not deposit excess reserves at the Central Bank
3. What does it mean when a Central Bank engages in a repurchase agreement (repo)?
   1. It buys securities now and agrees with the seller that he will buy it back at a later date
   2. It sells securities now and agrees with the buyer that he will sell it back at a later date
   3. It buys securities now and has an option to sell them back at a later date
   4. It sells securities now and has an option to buy them back at a later date
4. What is a disadvantage of open market operations (OMO)?
   1. OMOs are not so effective when banks accumulated massive excess reserves
   2. Central banks do not have full control over the volume of OMOs
   3. OMOs are not precise enough (e.g. to adjust also small amounts in the monetary base)
   4. OMOs are not reversible, i.e., if a mistake occurs, it cannot be reversed
5. What is not a goal of the standing facilities of a Central Bank?
   1. Pin down the overnight interbank rate
   2. Set a floor for the overnight interbank rate
   3. Set a ceiling for the overnight interbank rate
   4. Enable the Central Bank to act as a lender of last resort
6. Assume a central bank defines price stability as its main goal. Which statement concerning monetary policy strategy is wrong?
   1. Inflation targeting is more effective if the money-inflation relationship is strong
   2. The effectiveness of an implicit nominal anchor policy does not rely on a stable moneyinflation relationship
   3. The disadvantage of an inflation target is that it delivers only a delayed signal
   4. Monetary targeting delivers an immediate signal on the achievement of the target
7. The so-called Taylor rule helps central banks worldwide to determine their target in terms of interest rates. Assume inflation increases and the central bank wants to use the interest instrument to bring inflation down. Based on the Taylor rule, which statement is correct?
   1. The increase in the nominal interest rate is less than the increase in inflation
   2. The increase in the nominal interest rate is higher than the increase in inflation
   3. The increase in the real interest rate is higher than the increase in inflation
   4. The nominal interest rate does not change