Question 1

Monetary policy is considered time-inconsistent because

Accepted Answer

A) of the lag times associated with the implementation of monetary policy and its effect on the economy. 
B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. 
C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. 
D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy. 
A) of the lag times associated with the implementation of monetary policy and its effect on the economy. 
B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. 
C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. 
D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.

Question 2

The Fed's mistakes of the early 1930s were compounded by its decision to

Accepted Answer

A) raise reserve requirements in 1936-1937. 
B) lower reserve requirements in 1936-1937. 
C) raise the monetary base in 1936-1937. 
D) lower the monetary base in 1936-1937. 
A) raise reserve requirements in 1936-1937. 
B) lower reserve requirements in 1936-1937. 
C) raise the monetary base in 1936-1937. 
D) lower the monetary base in 1936-1937.

Question 3

High unemployment is undesirable because it

Accepted Answer

A) results in a loss of output. 
B) always increases inflation. 
C) always increases interest rates. 
D) reduces idle resources. 
A) results in a loss of output. 
B) always increases inflation. 
C) always increases interest rates. 
D) reduces idle resources.

Question 4

If the relationship between the monetary aggregate and the goal variable is weak,then

Accepted Answer

A) monetary aggregate targeting is superior to exchange-rate targeting. 
B) monetary aggregate targeting is superior to inflation targeting. 
C) inflation targeting is superior to exchange-rate targeting. 
D) monetary aggregate targeting will not work. 
A) monetary aggregate targeting is superior to exchange-rate targeting. 
B) monetary aggregate targeting is superior to inflation targeting. 
C) inflation targeting is superior to exchange-rate targeting. 
D) monetary aggregate targeting will not work.

Question 5

Foreign exchange rate stability is important because a decline in the value of the domestic currency will ________ the inflation rate,and an increase in the value of the domestic currency makes domestic industries ________ competitive with competing foreign industries.

Accepted Answer

A) increase;more 
B) increase;less 
C) decrease;more 
D) decrease;less 
A) increase;more 
B) increase;less 
C) decrease;more 
D) decrease;less

Question 6

The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future.

Accepted Answer

A) moral hazard 
B) time-inconsistency 
C) nominal-anchor 
D) rational-expectation 
A) moral hazard 
B) time-inconsistency 
C) nominal-anchor 
D) rational-expectation

Question 7

Which of the following is NOT an operating instrument?

Accepted Answer

A) nonborrowed reserves 
B) monetary base 
C) federal funds interest rate 
D) discount rate 
A) nonborrowed reserves 
B) monetary base 
C) federal funds interest rate 
D) discount rate

Question 8

The "Greenspan doctrine"-central banks should not try to prick bubbles-was based on which of the following arguments?

Accepted Answer

A) Asset-price bubbles are nearly impossible to identify. 
B) Monetary actions would be likely to affect asset prices in general,rather than the specific assets that are experiencing a bubble. 
C) Raising interest rates has often been found to cause a bubble to burst more severely. 
D) Monetary policy actions to prick bubbles can have harmful effects on the aggregate economy. 
E) All of the above. 
A) Asset-price bubbles are nearly impossible to identify. 
B) Monetary actions would be likely to affect asset prices in general,rather than the specific assets that are experiencing a bubble. 
C) Raising interest rates has often been found to cause a bubble to burst more severely. 
D) Monetary policy actions to prick bubbles can have harmful effects on the aggregate economy. 
E) All of the above.

Question 9

The most common definition that monetary policymakers use for price stability is

Accepted Answer

A) low and stable deflation. 
B) an inflation rate of zero percent. 
C) high and stable inflation. 
D) low and stable inflation. 
A) low and stable deflation. 
B) an inflation rate of zero percent. 
C) high and stable inflation. 
D) low and stable inflation.

Question 10

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy

Accepted Answer

A) using a nominal anchor. 
B) using a strict and inflexible rule. 
C) on a discretionary,day-by-day basis. 
D) using a flexible,discretionary rule. 
A) using a nominal anchor. 
B) using a strict and inflexible rule. 
C) on a discretionary,day-by-day basis. 
D) using a flexible,discretionary rule.

Question 11

Either a dual or hierarchial mandate is acceptable as long as ________ is the primary goal in the ________.

Accepted Answer

A) price stability;short run 
B) price stability;long run 
C) reducing business-cycle fluctuations;short run 
D) reducing business-cycle fluctuations;long run 
A) price stability;short run 
B) price stability;long run 
C) reducing business-cycle fluctuations;short run 
D) reducing business-cycle fluctuations;long run

Question 12

In pursuing a strategy of monetary targeting,the central bank announces that it will achieve a certain value (the target)of the annual growth rate of a ________.

Accepted Answer

A) a monetary aggregate 
B) a reserve aggregate 
C) the monetary base 
D) GDP 
A) a monetary aggregate 
B) a reserve aggregate 
C) the monetary base 
D) GDP

Question 13

Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the

Accepted Answer

A) monetary base. 
B) money supply. 
C) federal funds interest rate. 
D) exchange rate. 
A) monetary base. 
B) money supply. 
C) federal funds interest rate. 
D) exchange rate.

Question 14

International policy coordination refers to

Accepted Answer

A) central banks in major nations acting without regard to the global consequences of their policies. 
B) central banks in major nations pursuing only domestic objectives. 
C) central banks adopting policies in pursuit of joint objectives. 
D) central banks all adopting identical policies. 
A) central banks in major nations acting without regard to the global consequences of their policies. 
B) central banks in major nations pursuing only domestic objectives. 
C) central banks adopting policies in pursuit of joint objectives. 
D) central banks all adopting identical policies.

Question 15

The type of monetary policy that is used in Canada,New Zealand,and the United Kingdom is

Accepted Answer

A) monetary targeting. 
B) inflation targeting. 
C) targeting with an implicit nominal anchor. 
D) interest-rate targeting. 
A) monetary targeting. 
B) inflation targeting. 
C) targeting with an implicit nominal anchor. 
D) interest-rate targeting.

Question 16

A nominal anchor promotes price stability by

Accepted Answer

A) outlawing inflation. 
B) stabilizing interest rates. 
C) keeping inflation expectations low. 
D) keeping economic growth low. 
A) outlawing inflation. 
B) stabilizing interest rates. 
C) keeping inflation expectations low. 
D) keeping economic growth low.

Question 17

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy starting in the mid-1970s and continuing through the next two decades 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 18

Explain the time-inconsistency problem. What is the likely outcome of discretionary policy? What are the solutions to the time-inconsistency problem?

Accepted Answer

With policy discretion,policymakers have

Question 19

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. 
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 20

During the 1950s,the Fed targeted

Accepted Answer

A) M1. 
B) M2. 
C) the monetary base. 
D) money market conditions. 
A) M1. 
B) M2. 
C) the monetary base. 
D) money market conditions.

Exam 16: The Conduct of Monetary Policy: Strategy and Tactics

Monetary policy is considered time-inconsistent because

The Fed's mistakes of the early 1930s were compounded by its decision to

High unemployment is undesirable because it

If the relationship between the monetary aggregate and the goal variable is weak,then

Foreign exchange rate stability is important because a decline in the value of the domestic currency will ________ the inflation rate,and an increase in the value of the domestic currency makes domestic industries ________ competitive with competing foreign industries.

The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future.

Which of the following is NOT an operating instrument?

The "Greenspan doctrine"-central banks should not try to prick bubbles-was based on which of the following arguments?

The most common definition that monetary policymakers use for price stability is

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy

Either a dual or hierarchial mandate is acceptable as long as ________ is the primary goal in the ________.

In pursuing a strategy of monetary targeting,the central bank announces that it will achieve a certain value (the target)of the annual growth rate of a ________.

Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the

International policy coordination refers to

The type of monetary policy that is used in Canada,New Zealand,and the United Kingdom is

A nominal anchor promotes price stability by

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy starting in the mid-1970s and continuing through the next two decades was that

Explain the time-inconsistency problem. What is the likely outcome of discretionary policy? What are the solutions to the time-inconsistency problem?

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

During the 1950s,the Fed targeted

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior 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

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

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

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

Foreign exchange rate stability is important because a decline in the value of the domestic currency will the inflation rate,and an increase in the value of the domestic currency makes domestic industries competitive with competing foreign industries.

Either a dual or hierarchial mandate is acceptable as long as is the primary goal in the .