Exam 25: The Role of Expectations in Monetary Policy

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand, thereby strengthening the case for ________ policy.

Arguments for adopting a policy rule include ________.

The U.S. government can play an important role in establishing the credibility of anti-inflation policy by ________.

A credible, nonaccommodating policy rule has the ________ that it makes a cost-push by workers ________ likely and thus helps to reduce the output loss from controlling inflation.

Advocates of nondiscretionary policy contend that a discretionary policy of shifting the aggregate ________ curve will be costly because it produces ________ volatility in both the price level and output.

Monetarists ________.

The difference in outcomes occurring with a credible nominal anchor and without one, given a negative aggregate demand shock is that ________.

The global economic crisis that arose in October 2008 was the result of ________.

In August 1985, the Bolivian government announced ________.

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then ________.

The Bank of Canada has not always had a reputation for garnering credibility. These include countervailing monetary policies in ________.

Operating with discretion in a monetary policy sense implies ________.

The difference in outcomes occurring with a credible nominal anchor and without one, given a negative aggregate supply shock is that ________.

Empirical evidence on the importance of credibility in dealing with inflation includes experience from countries such as ________.

Suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target.

Which of the following views are consistent with the case for nondiscretionary macroeconomic policy?

A positive aggregate demand shock will only impact ________.

One of the drawbacks of rules based monetary policy is ________.

Explain the difference in how the Canadian economy responding during the three oil shocks and the role monetary policy credibility played.

Provide several ways that the central bank could establish credibility.