Question 1

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that ________.

Accepted Answer

A)  they used a rigid target for the money growth rate 
B)  they implemented policy so their inflation rate goal was met in the short run 
C)  the money target was flexible to allow the Bundesbank to concentrate on other goals as needed 
D)  they rarely communicated the intentions of policy to the public in order to keep the public from panicking 
A)  they used a rigid target for the money growth rate 
B)  they implemented policy so their inflation rate goal was met in the short run 
C)  the money target was flexible to allow the Bundesbank to concentrate on other goals as needed 
D)  they rarely communicated the intentions of policy to the public in order to keep the public from panicking

Question 2

What are the advantages inflation targeting?

Accepted Answer

The advantages of inflation targeting in

Question 3

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in the CPI, because the CPI ________.

Accepted Answer

A)  is the most commonly used and understood price measure in Canada 
B)  comes out monthly and without revisions, whereas other price measures are frequently revised 
C)  A and B only. 
D)  None of the above. 
A)  is the most commonly used and understood price measure in Canada 
B)  comes out monthly and without revisions, whereas other price measures are frequently revised 
C)  A and B only. 
D)  None of the above.

Question 4

What does the Bank of Japan use as its daily operating target to conduct monetary policy?

Accepted Answer

A)  Monetary aggregates 
B)  Non borrowed reserves 
C)  The inter-bank market interest rate 
D)  Reserve aggregates 
A)  Monetary aggregates 
B)  Non borrowed reserves 
C)  The inter-bank market interest rate 
D)  Reserve aggregates

Question 5

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

Question 6

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 
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 7

Which of the following is an advantage to inflation targeting?

Accepted Answer

A)  There is a delayed signal about achievement of the target. 
B)  Inflation targets could impose a rigid rule on policymakers. 
C)  There is potential for larger output fluctuations. 
D)  It is easily understood by the public. 
A)  There is a delayed signal about achievement of the target. 
B)  Inflation targets could impose a rigid rule on policymakers. 
C)  There is potential for larger output fluctuations. 
D)  It is easily understood by the public.

Question 8

The midpoint of the Bank of Canada's inflation target range is ________.

Accepted Answer

A)  3 percent 
B)  2 percent 
C)  1 percent 
D)  None of the above. 
A)  3 percent 
B)  2 percent 
C)  1 percent 
D)  None of the above.

Question 9

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

Question 10

The Bank of Canada adopted inflation targets ________.

Accepted Answer

A)  because the 1982-1988 checklist approach to policy made it difficult for the Bank to control money growth and inflation 
B)  following a three-year campaign to promote price stability as the long-term goal of monetary policy 
C)  by announcing explicit targets for the inflation rate, rather than for money growth 
D)  All of the above. 
A)  because the 1982-1988 checklist approach to policy made it difficult for the Bank to control money growth and inflation 
B)  following a three-year campaign to promote price stability as the long-term goal of monetary policy 
C)  by announcing explicit targets for the inflation rate, rather than for money growth 
D)  All of the above.

Question 11

If the Taylor Principle is not followed and nominal interest rates are increased by less than the increase in the inflation rate, then real interest rates will ________ and monetary policy will be too ________.

Accepted Answer

A)  rise; tight 
B)  rise; loose 
C)  fall; tight 
D)  fall; loose 
A)  rise; tight 
B)  rise; loose 
C)  fall; tight 
D)  fall; loose

Question 12

In July 1993, Board of Governors Chairman Alan Greenspan testified in Congress that the Fed would no longer use what as a guide for conducting monetary policy?

Accepted Answer

A)  The inflation rate 
B)  Monetary aggregates 
C)  Implicit nominal anchors 
D)  The federal funds rate 
A)  The inflation rate 
B)  Monetary aggregates 
C)  Implicit nominal anchors 
D)  The federal funds rate

Question 13

If the desired intermediate target is an interest rate, then the preferred policy instrument will be a(n) ________ variable like the ________.

Accepted Answer

A)  interest rate; three-month T-bill rate 
B)  interest rate; overnight rate 
C)  monetary aggregate; monetary base 
D)  monetary aggregate; nonborrowed base 
A)  interest rate; three-month T-bill rate 
B)  interest rate; overnight rate 
C)  monetary aggregate; monetary base 
D)  monetary aggregate; nonborrowed base

Question 14

Increases in interest rates ________.

Accepted Answer

A)  cause large capital losses 
B)  could lead to bank failures 
C)  affect consumers' willingness to buy houses 
D)  all of the above 
A)  cause large capital losses 
B)  could lead to bank failures 
C)  affect consumers' willingness to buy houses 
D)  all of the above

Question 15

The United Kingdom uses ________ as its nominal anchor.

Accepted Answer

A)  inflation target 
B)  monetary aggregates 
C)  interest rate target 
D)  none of the above 
A)  inflation target 
B)  monetary aggregates 
C)  interest rate target 
D)  none of the above

Question 16

Which of the following is a disadvantage 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. 
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 17

The Bank of Canada's anti-inflation policy during the 1982-1988 period can be viewed as one where ________ became the operating target and ________ was the intermediate target.

Accepted Answer

A)  the interest rate; the inflation rate 
B)  the interest rate; the exchange rate 
C)  the monetary base; the inflation rate 
D)  the monetary base; the exchange rate 
A)  the interest rate; the inflation rate 
B)  the interest rate; the exchange rate 
C)  the monetary base; the inflation rate 
D)  the monetary base; the exchange rate

Question 18

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

Accepted Answer

The time-inconsistency problem occurs wh

Question 19

In the 1975-1981 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target of monetary policy.

Accepted Answer

A)  an interest rate; a monetary aggregate 
B)  a monetary aggregate; an interest rate 
C)  the monetary base; a monetary aggregate 
D)  a monetary aggregate; inflation 
A)  an interest rate; a monetary aggregate 
B)  a monetary aggregate; an interest rate 
C)  the monetary base; a monetary aggregate 
D)  a monetary aggregate; inflation

Question 20

Which of the following is disadvantage of inflation targeting?

Accepted Answer

A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  It may lead to larger output fluctuations. 
D)  Inflation targeting reduces the effects of inflation shocks. 
A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  It may lead to larger output fluctuations. 
D)  Inflation targeting reduces the effects of inflation shocks.

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

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that ________.

What are the advantages inflation targeting?

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in the CPI, because the CPI ________.

What does the Bank of Japan use as its daily operating target to conduct monetary policy?

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

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

Which of the following is an advantage to inflation targeting?

The midpoint of the Bank of Canada's inflation target range is ________.

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

The Bank of Canada adopted inflation targets ________.

If the Taylor Principle is not followed and nominal interest rates are increased by less than the increase in the inflation rate, then real interest rates will ________ and monetary policy will be too ________.

In July 1993, Board of Governors Chairman Alan Greenspan testified in Congress that the Fed would no longer use what as a guide for conducting monetary policy?

If the desired intermediate target is an interest rate, then the preferred policy instrument will be a(n) ________ variable like the ________.

Increases in interest rates ________.

The United Kingdom uses ________ as its nominal anchor.

Which of the following is a disadvantage to monetary targeting?

The Bank of Canada's anti-inflation policy during the 1982-1988 period can be viewed as one where ________ became the operating target and ________ was the intermediate target.

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

In the 1975-1981 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target of monetary policy.

Which of the following is disadvantage of inflation targeting?

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 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

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

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

If the Taylor Principle is not followed and nominal interest rates are increased by less than the increase in the inflation rate, then real interest rates will and monetary policy will be too .

If the desired intermediate target is an interest rate, then the preferred policy instrument will be a(n) variable like the .

The Bank of Canada's anti-inflation policy during the 1982-1988 period can be viewed as one where became the operating target and was the intermediate target.

In the 1975-1981 period, the Bank of Canada used as the operating target and as the intermediate target of monetary policy.