MONETARY ECONOMICS

A.A. 2022/2023

Date: December 2022

SIMULATION
Professors M. Lucchetta

Time to complete the test: 60 minutes

LAST NAME FIRST NAME MATR. NUMBER

____________________ _____________________________ _________________

Have you done the Home Work? YES NO

Question 1 2 3 4 5 6 7 8 9 10 11
Score
* DO NOT FILL THIS AREA – FOR GRADING PURPOSES ONLY

Note: Each question is worth up to the points indicated, i.e., if the max is 3, the grade is between 0
and 3 (Max grade 33=30L). You can use ONLY a pocket calculator without advanced functions. No
mobile phone, tablet laptop and other devices are admitted. Notes or textbook are not permitted.
When required, we expect you to show the calculations. Try to fit all your work in the space
provided. If you find you need more space continue on the back of the page, clearly stating which is
the question you are answering.
 1) According to the Taylor rule, what implies a level of output lower than the target?
A) the need to increase the interest rate.
B) the need of fiscal policy.
D) the need to decrease output.
C) the need to cut the interest rate. (what about today?)

2) What is a Credit Crunch?

A) economic activity declines.
B) financial markets stop functioning affecting economic activity.
C) interbank markets need to help the financial transactions.
D) banks stop lending to firms.

3) The ECB estimates the Taylor rule for December 2022 as

+ ) + 𝜷(𝒚𝒕 − 𝒚
𝒓𝒕 = 𝟎. 𝟎𝟐 + 𝜶(𝝅𝒕 − 𝝅 +)

With 𝜶 = 𝟐 and 𝜷 = 𝟏

The actual inflation is higher than the target by 5 percentage point, and the EU
product is lower than the target by 6 percentage points.
Which is the optimal rate set by the ECB?

Please: show the calculation

Solution: 0.02 + 2*(0.05) + 1*(-0.06)--à6%

4) How Changes in Interest Rates Affect Growth?

5) What is the present value of $200.00 that you will receive in two years if the interest rate
is 5 %?
A) $190.475
B) $200
C) $191.406
D) $181.406
Answer: D it is enough to calculate: 200/(1.05)^2
 6) The Distinction Between Real and Nominal Interest Rates is…
A) Nominal interest rate makes allowance for inflation.
B) Nominal interest rate makes no allowance for inflation.
C) Real interest rate is higher than the nominal interest rate.
D) Nominal interest rates are decided by the markets.

7) What is the present value of $ 400.00 that you will receive in one year if the interest
rate could be 5% with half probability and -2% with the same probability?
Please: show the calculation

Answer: it is enough to calculate: 400/((0.5*1.05) + (0.5*(1 - 0.02)))= 394.089

8) What is the interbank market?

A) A liquidity exchange channel between businesses and banks.
B) A channel of exchange of liquidity between banks.
C) A channel of exchange of securities and liquidity between banks.
D) A channel of exchange of securities between different markets.

9) ________ is a flow of earnings per unit of time.

A) Income
B) Money
C) Wealth
D) Currency

10) If you invest in the bank for 2 consecutive years $ 100 at the 3% risk-free rate, what do
you get when you withdraw it all?
A) 98.0296
B) 103.03
C) 101
D) 106.09 100*(1.03)^2

11) Which of the following central banks is responsible of the monetary policy in Europe?
A) FED.
B) ECB.
C) Bank of Italy.
D) Bank of Spain.