Question
QUESTION 6 Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets
QUESTION 6
Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets as Firm A and the same amount of liabilities but its liabilities are all at fixed interest rates. If the central bank lowers interest rates, everything else constant:
| a- The net worth of both firms will increase and by the same amount. | |
| b- Neither firm's net worth will change. | |
| c- Firm A's net worth will increase more than Firm B's. | |
| d- Firm B's net worth will increase more than Firm A's. |
QUESTION 7
The Japanese experience of the 1990s shows:
| a- sometimes monetary policy does not work. | |
| b- central bankers should not try to counter the business cycle. | |
| c- monetary policy always works. | |
| d- The Japanese experience of the 1990s shows: |
QUESTION 8
To compensate for the collapse of intermediation and the fragility of financial markets during the 2007-2009 financial crisis, central banks deployed all but which of the following unconventional tools:
| a- Forward guidance | |
| b- Targeted asset purchases | |
| c- Lowering interbank lending interest rate targets | |
| d- Quantitative easing |
QUESTION 9
Which of the following statements is most correct?
| a- There is evidence that high real interest rates are followed by lower levels of growth. | |
| b- High real interest rates cause recessions. | |
| c- Central bankers raise real interest rates to cause recessions. | |
| d- There is no evidence that high real interest rates are followed by lower levels of growth. |
QUESTION 10
Between September 2007 and December 2008, the FOMC reduced the target federal funds rate 5.25 percentage points toward zero. A reason for this was that the FOMC:
| a- was acting preemptively. | |
| b- feared over stimulating the economy. | |
| c- was taking a wait and see approach to previous cuts. | |
| d- was feeling political pressure to act. |
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