Question 1

If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because ________.

Accepted Answer

A)  of fluctuations in the demand for reserves
B)  of fluctuations in the consumption function
C)  bond values will tend to remain stable
D)  of fluctuations in the business cycle

Question 2

Explain and demonstrate graphically how targeting nonborrowed reserves can result in overnight rate instability.

Accepted Answer

When nonborrowed reserves are held const...

Question 3

The target inflation range set by the Bank of England is ________.

Accepted Answer

A)  1-4 percent
B)  1-3 percent
C)  2-4 percent
D)  2-3 percent

Question 4

Current estimates of NAIRU place it between ________ and ________.

Accepted Answer

A)  4 percent; 6 percent
B)  4 percent; 20 percent
C)  1 percent; 3 percent
D)  1 percent; 4 percent

Question 5

Give five reasons why central banks should not try to prick an asset-price bubble.

Accepted Answer

The answer should include (1) a discussi...

Question 6

Compared to the United States, Japan's experience with monetary targeting performed ________.

Accepted Answer

A)  better with regard to the inflation rate and output fluctuations
B)  worse with regard to the inflation rate and output fluctuations
C)  better with regard to the inflation rate, but worse with regard to output fluctuations
D)  worse with regard to the inflation rate, but better with regard to output fluctuations

Question 7

Which of the following is a NOT an advantage to monetary targeting?

Accepted Answer

A)  It relies on a stable money-inflation relationship.
B)  There is a delayed signal about the achievement of a target.
C)  It implies larger output fluctuations.
D)  It implies a lack of transparency.

Question 8

Which of the following is a disadvantage of inflation targeting?

Accepted Answer

A)  There is transparency.
B)  Inflation targeting does not rely on a stable money-inflation relationship.
C)  It imposes a rigid rule.
D)  Inflation targeting reduces the effects of inflation shocks.

Question 9

Which of the following is not an operating instrument?

Accepted Answer

A)  Nonborrowed reserves
B)  Monetary base
C)  Overnight funds interest rate
D)  Bank rate

Question 10

High unemployment ________.

Accepted Answer

A)  results in lower GDP
B)  leads to increased human misery
C)  cannot be a target of monetary policy
D)  A and B only

Question 11

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

Accepted Answer

A)  was concerned about inflation
B)  was still very concerned with achieving interest rate stability
C)  was committed to the real bills doctrine
D)  was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly

Question 12

Describe the time-inconsistency problem as it pertains to monetary policy outcomes.

Accepted Answer

The time-inconsistency problem occurs wh...

Question 13

According to the Taylor rule, the overnight interest rate should be set at ________.

Accepted Answer

A)  π + iₒᵣ - 0.5(π - π*)  - 0.5(y - y) 
B)  π + iₒᵣ + 0.5(π - π*)  + 0.5(y - y) 
C)  r + π
D)  r - π

Question 14

Did the Great Moderation protect economies from financial instability.

Accepted Answer

No, The apparent stability of ...

Question 15

The two types of asset-price bubbles are ________ and ________ bubbles.

Accepted Answer

A)  credit-driven; debt driven
B)  rational; optimistic
C)  irrational exuberance; optimistic
D)  credit-driven; irrational exuberance

Question 16

Price stability is defined as ________.

Accepted Answer

A)  low inflation
B)  low and stable inflation
C)  stable inflation
D)  core inflation

Question 17

During the 1975-1981 period, the Bank of Canada decided to target the growth rate of M1 because it ________.

Accepted Answer

A)  was the most prominent measure of money
B)  had a stable demand
C)  had a predictable relationship with income and prices
D)  All of the above.

Question 18

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Accepted Answer

A)  the interest rate; the exchange rate
B)  the monetary base; the interest rate
C)  the short-term interest rate; the long-term interest rate
D)  the interest rate; the money supply

Question 19

Inflation targeting includes ________.

Accepted Answer

A)  a public announcement of medium-term targets for inflation
B)  an institutional commitment to price stability as the primary long run goal
C)  an information-inclusive approach in which many variables are used in making decisions about monetary policy
D)  all of the above

Question 20

In the 1975-1981 period, the Bank of Canada selected an interest rate as an operating target than a reserve aggregate primarily because it ________.

Accepted Answer

A)  had no interest in targeting a monetary aggregate, as evidenced by its unwillingness to target a reserve aggregate
B)  was still very concerned with interest rate stability
C)  was committed to the real bills doctrine
D)  was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly
E)  None of the above

Exam 17: The Conduct of Monetary Policy: Strategy and Tactics

Compared to the United States, Japan's experience with monetary targeting performed ________.

Correct AnswerverifiedShow Answer

Inflation targeting includes ________.

Correct AnswerverifiedShow Answer

Which of the following is a disadvantage of inflation targeting?

Correct AnswerverifiedShow Answer

During the 1975-1981 period, the Bank of Canada decided to target the growth rate of M1 because it ________.

Correct AnswerverifiedShow Answer

Give five reasons why central banks should not try to prick an asset-price bubble.

Correct AnswerverifiedThe answer should include (1) a discussi...View AnswerShow Answer

High unemployment ________.

Correct AnswerverifiedShow Answer

In the 1975-1981 period, the Bank of Canada selected an interest rate as an operating target than a reserve aggregate primarily because it ________.

Correct AnswerverifiedShow Answer

Describe the time-inconsistency problem as it pertains to monetary policy outcomes.

Correct AnswerverifiedThe time-inconsistency problem occurs wh...View AnswerShow Answer

Did the Great Moderation protect economies from financial instability.

Correct AnswerverifiedNo, The apparent stability of ...View AnswerShow Answer

Which of the following is not an operating instrument?

Correct AnswerverifiedShow Answer

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

Correct AnswerverifiedShow Answer

According to the Taylor rule, the overnight interest rate should be set at ________.

Correct AnswerverifiedShow Answer

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Correct AnswerverifiedShow Answer

Price stability is defined as ________.

Correct AnswerverifiedShow Answer

Explain and demonstrate graphically how targeting nonborrowed reserves can result in overnight rate instability.

Correct AnswerverifiedWhen nonborrowed reserves are held const...View AnswerShow Answer

Current estimates of NAIRU place it between ________ and ________.

Correct AnswerverifiedShow Answer

Which of the following is a NOT an advantage to monetary targeting?

Correct AnswerverifiedShow Answer

The two types of asset-price bubbles are ________ and ________ bubbles.

Correct AnswerverifiedShow Answer

If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because ________.

Correct AnswerverifiedShow Answer

The target inflation range set by the Bank of England is ________.

Correct AnswerverifiedShow Answer

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The answer should include (1) a discussi...
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The time-inconsistency problem occurs wh...
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No, The apparent stability of ...
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During the 1982-1988 period, the Bank of Canada used as the operating target and as the intermediate target.

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When nonborrowed reserves are held const...
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Current estimates of NAIRU place it between and .

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The two types of asset-price bubbles are and bubbles.

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