Question 1

A rule that is advocated by the monetarists is the ________ rule.

Accepted Answer

A)  constant money growth rate 
B)  escalating money growth rate 
C)  fiscal expansionism 
D)  interest rate sterilization 
A)  constant money growth rate 
B)  escalating money growth rate 
C)  fiscal expansionism 
D)  interest rate sterilization

Question 2

The Lucas critique indicates that ________.

Accepted Answer

A)  advocates of discretionary policies' criticisms of rational expectations models are well-founded 
B)  advocates of discretionary policies' criticisms of rational expectations models are not well-founded 
C)  expectations are important in determining the outcome of a discretionary policy 
D)  expectations are not important in determining the outcome of a discretionary policy 
A)  advocates of discretionary policies' criticisms of rational expectations models are well-founded 
B)  advocates of discretionary policies' criticisms of rational expectations models are not well-founded 
C)  expectations are important in determining the outcome of a discretionary policy 
D)  expectations are not important in determining the outcome of a discretionary policy

Question 3

Describe how a nominal anchor can help a central bank achieve credibility.

Accepted Answer

An important way to constrain discretion

Question 4

The ________ is the credibility of the central bank, the more rapid will be the ________ in inflation and the ________ will be the loss of output to achieve the inflation objective.

Accepted Answer

A)  greater; decline; lower 
B)  greater; increase; lower 
C)  greater; decline; greater 
D)  greater; increase; greater 
A)  greater; decline; lower 
B)  greater; increase; lower 
C)  greater; decline; greater 
D)  greater; increase; greater

Question 5

An example of a negative aggregate demand shock is ________.

Accepted Answer

A)  a global carbon cap-and-trade program 
B)  a global financial crisis 
C)  a decrease in the price of oil 
D)  thermonuclear war 
A)  a global carbon cap-and-trade program 
B)  a global financial crisis 
C)  a decrease in the price of oil 
D)  thermonuclear war

Question 6

A negative aggregate demand shock will only impact ________.

Accepted Answer

A)  the equilibrium interest rate 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  none of the above 
A)  the equilibrium interest rate 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  none of the above

Question 7

By ________ its deficit, the government's credibility of anti-inflationary policy ________.

Accepted Answer

A)  not changing; remains the same 
B)  reducing; increases 
C)  reducing; decreases 
D)  not changing; increases 
A)  not changing; remains the same 
B)  reducing; increases 
C)  reducing; decreases 
D)  not changing; increases

Question 8

If a negative aggregate supply shock occurs and monetary policy is not credible then ________.

Accepted Answer

A)  inflation will higher and output lower than with credible policy 
B)  the equilibrium interest rate will fall 
C)  there will be a corresponding autonomous decrease in aggregate supply 
D)  none of the above 
A)  inflation will higher and output lower than with credible policy 
B)  the equilibrium interest rate will fall 
C)  there will be a corresponding autonomous decrease in aggregate supply 
D)  none of the above

Question 9

The three big oil price shocks occurred in ________.

Accepted Answer

A)  1973, 1979, 2007 
B)  1972, 1979, 2007 
C)  1973, 1978, 2007 
D)  1973, 1979, 2006 
A)  1973, 1979, 2007 
B)  1972, 1979, 2007 
C)  1973, 1978, 2007 
D)  1973, 1979, 2006

Question 10

A negative aggregate supply shock will impact ________.

Accepted Answer

A)  the equilibrium output 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  all of the above 
A)  the equilibrium output 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  all of the above

Question 11

The Lucas critique is an attack on the usefulness of ________.

Accepted Answer

A)  conventional econometric models as forecasting tools 
B)  conventional econometric models as indicators of the potential impacts on the economy of particular policies 
C)  rational expectations models of macroeconomic activity 
D)  the relationship between the quantity theory of money and aggregate demand 
A)  conventional econometric models as forecasting tools 
B)  conventional econometric models as indicators of the potential impacts on the economy of particular policies 
C)  rational expectations models of macroeconomic activity 
D)  the relationship between the quantity theory of money and aggregate demand

Question 12

Provide some alternate approaches to establishing credibility.

Accepted Answer

To achieve credibility, the central bank

Question 13

Explain why the Bank of Canada had a credibility problem during the 1970s.

Accepted Answer

In the early 1970s, the Bank of Canada a

Question 14

Approaches to establishing central bank credibility include ________.

Accepted Answer

A)  continued success at keeping inflation under control 
B)  central bank independence 
C)  appointment of a more conservative central banker 
D)  all of the above 
A)  continued success at keeping inflation under control 
B)  central bank independence 
C)  appointment of a more conservative central banker 
D)  all of the above

Question 15

If aggregate output is below the natural rate level, advocates of nondiscretionary policy would recommend that the government ________.

Accepted Answer

A)  do nothing 
B)  try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right 
C)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right 
D)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left 
A)  do nothing 
B)  try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right 
C)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right 
D)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left

Question 16

If a positive aggregate demand shock occurs and monetary policy is not credible then ________.

Accepted Answer

A)  inflation will increase 
B)  the equilibrium interest rate will fall 
C)  there will be a corresponding autonomous decrease in aggregate supply 
D)  none of the above 
A)  inflation will increase 
B)  the equilibrium interest rate will fall 
C)  there will be a corresponding autonomous decrease in aggregate supply 
D)  none of the above

Question 17

If expectations about policy affect how wages are set, then the case for a(n) ________ policy is much stronger.

Accepted Answer

A)  discretionary 
B)  nondiscretionary 
C)  interventionist 
D)  stabilization 
A)  discretionary 
B)  nondiscretionary 
C)  interventionist 
D)  stabilization

Question 18

The time inconsistency problem with respect to policy conduct means ________.

Accepted Answer

A)  the tendency to deviate from long-run plans when making short run decisions 
B)  implementing a constant growth rate rule 
C)  that politicians are not elected for long enough time frames 
D)  there is no room for hard and fast monetary rules 
A)  the tendency to deviate from long-run plans when making short run decisions 
B)  implementing a constant growth rate rule 
C)  that politicians are not elected for long enough time frames 
D)  there is no room for hard and fast monetary rules

Question 19

An example of a nominal anchor is ________.

Accepted Answer

A)  the inflation rate 
B)  the real interest rate 
C)  government purchases 
D)  the tax rate 
A)  the inflation rate 
B)  the real interest rate 
C)  government purchases 
D)  the tax rate

Question 20

The notion of hiring central bankers who are "conservative" and have a strong aversion to inflation was introduced by ________.

Accepted Answer

A)  Kenneth Galbraith 
B)  Ben Bernanke 
C)  Gerald Bouey 
D)  Kenneth Rogoff 
A)  Kenneth Galbraith 
B)  Ben Bernanke 
C)  Gerald Bouey 
D)  Kenneth Rogoff

Exam 25: The Role of Expectations in Monetary Policy

A rule that is advocated by the monetarists is the ________ rule.

The Lucas critique indicates that ________.

Describe how a nominal anchor can help a central bank achieve credibility.

The ________ is the credibility of the central bank, the more rapid will be the ________ in inflation and the ________ will be the loss of output to achieve the inflation objective.

An example of a negative aggregate demand shock is ________.

A negative aggregate demand shock will only impact ________.

By ________ its deficit, the government's credibility of anti-inflationary policy ________.

If a negative aggregate supply shock occurs and monetary policy is not credible then ________.

The three big oil price shocks occurred in ________.

A negative aggregate supply shock will impact ________.

The Lucas critique is an attack on the usefulness of ________.

Provide some alternate approaches to establishing credibility.

Explain why the Bank of Canada had a credibility problem during the 1970s.

Approaches to establishing central bank credibility include ________.

If aggregate output is below the natural rate level, advocates of nondiscretionary policy would recommend that the government ________.

If a positive aggregate demand shock occurs and monetary policy is not credible then ________.

If expectations about policy affect how wages are set, then the case for a(n) ________ policy is much stronger.

The time inconsistency problem with respect to policy conduct means ________.

An example of a nominal anchor is ________.

The notion of hiring central bankers who are "conservative" and have a strong aversion to inflation was introduced by ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

The is the credibility of the central bank, the more rapid will be the in inflation and the will be the loss of output to achieve the inflation objective.

By its deficit, the government's credibility of anti-inflationary policy .