QUESTION 17

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

		a- lowering their interest rate target when they suspect a bubble.
		b- raising their interest rate target when they suspect a bubble.
		c- purchasing U.S. treasury securities to drive up their prices.
		d- expanding the money supply in the economy.

QUESTION 18

Stock prices may rise from a reduction in interest rates because:

		a- the present value of future earnings will decrease.
		b- the present value of future earnings will increase.
		c- financial market participants are less optimistic about future earnings.
		d- stockholders will expect lower future earnings.

QUESTION 19

The importance of the bank-lending channel of monetary policy transmission:

		a- becomes more important the more important banks are as a source of funds for firms and individuals.
		b- is likely to become more important with the growth of loan brokers and asset-backed securities.
		c- has become more important as technology has solved the problems of information and moral hazard.
		d- none of the answers given is correct.

QUESTION 20

When central bankers are acting preemptively they are:

		a- letting markets work and taking a wait and see approach.
		b- usually focused on reducing expansionary gaps.
		c- taking bold steps to stabilize the economy.
		d- aggressively trying to hit a zero inflation target.

QUESTION 21

The balance-sheet channel of monetary policy works because it can:

		a- increase a borrower's asset value but not the burden of his/her liabilities.
		b- change the value of a borrower's assets and liabilities, but it can't change a borrower's net worth.
		c- increase a borrower's assets and reduce the cost of his/her liabilities.
		d- none of the answers given is correct.

QUESTION 22

Bonds must have positive yields because:

		a- the banking technology does not exist to deal with negative yields.
		b- people can always hold cash.
		c- the U.S. treasury guarantees all bonds to have a positive yield.
		d- all of the answers given are correct.

QUESTION 23

Which of the following statements would you say best reflects monetary policy?

		a- There is certainly some science involved, a lot of understanding that is needed, but a lot of uncertainty still remains.
		b- It is a lot like gambling because the outcomes are most of the time uncertain.
		c- It is a hard and fast science.
		d- It is a hard and fast science.