Nominal interest rates incorporate a term premium. Which of the following is NOT a part of the term premium? O Uncertainty about the stability of the financial system O Expectations about future inflation. O Political risk stemming from an upcoming election. O Threat of a trade war.Which of the following is FALSE about yield curves? O A steepening of the yield curve is consistent with higher expected economic growth. O The yield curve contains information about monetary policy expectations of market participants. O The yield curve flattens when investors sell off more short-term Treasuries than long-term Treasuries. O A yield curve based on near-term spreads does not predict recessions.Starting in the late 20th century, the use of securitization has been rapidly rising. Which of the following is true about securitization? O Securitization increases the overall credit supply. O Securitization makes cash flow from loan pools predictable. O Securitization allow investors to diversify risk. O All of the above.The Federal Reserve has five key functions. Which of the following is NOT a key function of the Federal Reserve? O Insuring bank deposits. O Consumer protection. O Providing a payment system. O Supervision and regulation of banks. Financial stability.The Federal Reserve has several monetary policy tools. How does the interest rate at the overnight reverse repurchase program (ONRRP) interact with other monetary policy tools? O The ONRRP rate is set at the 10-year Treasury rate to help control the yield curve. O The ONRRP rate is set 5 basis points above the interest on reserves to limit arbitrage between reserves and other funding markets. O The ONRRP rate is set at the lower end of the target range for federal funds providing a lower bound for the federal funds rate. O The ONRRP rate is set at the same rate as prime rate at the discount window to enforce the upper bound of the federal funds rate.Which of the following best describes the Taylor rule? O The Taylor rule predicts how unemployment moves with GDP. O The Taylor rule illustrates the trade-off between inflation and unemployment. The Taylor rule calls for a constant increase in the money supply irrespective of cyclical fluctuations. O The Taylor rule provides an interest rate recommendation for central banks derived from deviations from target inflation and target unemployment.The Lender of Last Resort function of central banks means that central banks bail out insolvent banks during times of crisis. O True O FalseMost financial crises are no longer characterized by classical bank runs (depositors lining up to withdraw money) due to deposit insurance. Which of the following can still lead to a run on institutions in the financial sector? O Nonbank financial institutions engaging in liquidity transformation. O Banks underwriting corporate bonds. O Countries running a current account surplus. O Monetary policy tightening.Which of the following is likely to be the most effective tool for increasing consumption during a severe economic downturn? O Cutting the income tax. O Increasing government investment. O Sending checks to all households. O Increasing unemployment benefits