Quiz on Monetary Policy and the Federal Reserve

Who guides the operation of the Federal Reserve System?

• The President of the United States

• The Board of Governors

• The U.S. Congress

• The Supreme Court

Who selects the Fed chair?

• The President with Senate confirmation

• The Federal Reserve Board

• The General Accountability Office

• The Federal Open Market Committee

What is the Fed's inflation target?

• 0%

• 1%

• 2%

• 3%

If nominal wages do not change and the inflation rate is 2 percent, then

• the unemployment rate rises by 2 percent.

• real wages are effectively cut by 2 percent.

• the unemployment rate falls by 2 percent.

• real wages rise by 2 percent.

What does the Fed target when trying to influence the real interest rate?

• The nominal interest rate

• The inflation rate

• The unemployment rate

• The GDP growth rate

What is another name for the Fed rule-of-thumb?

• A) The Taylor Rule

• B) The Keynesian Rule

• C) The Friedman Rule

• D) The Phillips Curve

What is a potential downside of following a strict rule in setting interest rates?

• A) It can lead to higher inflation

• B) It can make monetary policy less predictable

• C) It can prevent reducing rates below zero

• D) It can increase economic growth

Which of the following acts a floor for the federal funds rate?

• the required reserve ratio

• the discount rate

• interest on reserves

• the growth rate of real GDP

Everything else constant, if interest rates in the U.S. rise, then the value of the U.S. dollars tends to

• fluctuate in an unpredictable manner.

• remain unchanged.

• appreciate (i.e., rise).

• depreciate (i.e., fall).

Which of the following acts as a ceiling for the federal funds rate?

• the discount rate

• the rate of inflation

• the required reserve ratio

• interest on reserves