Question 1

What are the advantages of monetary targeting?

Accepted Answer

One advantage of monetary targeting is that information on whether the central bank is achieving its target is known almost immediately-figures for monetary aggregates are typically reported within a couple of weeks.Thus monetary targets can send almost immediate signals to the public and markets about the stance of monetary policy and the intentions of the policymakers to keep inflation in check.In turn,these signals help fix inflation expectations and produce less inflation.Monetary targets also allow almost immediate accountability for monetary policy to keep inflation low,thus helping to constrain the monetary policymaker from falling into the time-inconsistency trap.

Question 2

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

Question 3

Fluctuations in the demand for reserves cause the Bank of Canada to lose control over a monetary aggregate if the Bank of Canada targets ________.

Accepted Answer

A)  a monetary aggregate 
B)  the monetary base 
C)  an interest rate 
D)  nominal GDP 
A)  a monetary aggregate 
B)  the monetary base 
C)  an interest rate 
D)  nominal GDP C

Question 4

During the 1982-1988 period,the Bank of Canada ________.

Accepted Answer

A)  looked at a list of factors in order to design and implement monetary policy 
B)  switched its focus to a range of broad monetary aggregates, but no aggregate was found suitable as a guide for conducting monetary policy 
C)  Both A and B of the above. 
D)  None of the above. 
A)  looked at a list of factors in order to design and implement monetary policy 
B)  switched its focus to a range of broad monetary aggregates, but no aggregate was found suitable as a guide for conducting monetary policy 
C)  Both A and B of the above. 
D)  None of the above.

Question 5

Interest rates are difficult to measure because ________.

Accepted Answer

A)  data on them are not available in a timely manner 
B)  real interest rates depend on the hard-to-determine expected inflation rate 
C)  they fluctuate too often to be accurate 
D)  they cannot be controlled by the Bank of Canada 
A)  data on them are not available in a timely manner 
B)  real interest rates depend on the hard-to-determine expected inflation rate 
C)  they fluctuate too often to be accurate 
D)  they cannot be controlled by the Bank of Canada

Question 6

During the 1960s and early 1970s,the Bank of Canada used ________ as the intermediate target(s),to keep the foreign exchange and domestic bonds markets functioning smoothly.

Accepted Answer

A)  the exchange rate and the interest rate 
B)  the interest rate 
C)  the monetary base 
D)  None of the above 
A)  the exchange rate and the interest rate 
B)  the interest rate 
C)  the monetary base 
D)  None of the above

Question 7

Since 1978,the Bank of Japan has used an interest rate as its daily operating target ________.

Accepted Answer

A)  providing additional evidence that interest rate smoothing is inconsistent with reducing inflation 
B)  because money growth in Japan is very volatile 
C)  with very good success, suggesting that an interest rate operating target is not necessarily a barrier to successful monetary policy 
D)  Only A and C of the above. 
A)  providing additional evidence that interest rate smoothing is inconsistent with reducing inflation 
B)  because money growth in Japan is very volatile 
C)  with very good success, suggesting that an interest rate operating target is not necessarily a barrier to successful monetary policy 
D)  Only A and C of the above.

Question 8

During the 1975-1981 period,although the Bank of Canada was successful in keeping actual M1 growth within the target range,________.

Accepted Answer

A)  the inflation rate by the end of the 1970s was almost at the same level as when monetary gradualism was introduced in 1975 
B)  a series of financial innovations motivated individuals and firms to substitute out of M1 and into M2 
C)  the growth rate of M2 increased 
D)  All of the above. 
A)  the inflation rate by the end of the 1970s was almost at the same level as when monetary gradualism was introduced in 1975 
B)  a series of financial innovations motivated individuals and firms to substitute out of M1 and into M2 
C)  the growth rate of M2 increased 
D)  All of the above.

Question 9

The importance of a nominal anchor is to ________.

Accepted Answer

A)  limit the time-inconsistency problem 
B)  reduce inflation 
C)  promote low inflation 
D)  allow discretionary day-to-day monetary policy 
A)  limit the time-inconsistency problem 
B)  reduce inflation 
C)  promote low inflation 
D)  allow discretionary day-to-day monetary policy

Question 10

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 11

The decision by inflation targeters to choose inflation targets ________ zero reflects the concern of monetary policymakers that particularly ________ inflation can have substantial negative effects on economic growth.

Accepted Answer

A)  below; high 
B)  below; low 
C)  above; high 
D)  above; low 
A)  below; high 
B)  below; low 
C)  above; high 
D)  above; low

Question 12

Under monetary targeting,a central bank announces an annual growth rate target for ________.

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

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 14

Which of the following is a potential operating instrument for the central bank?

Accepted Answer

A)  The monetary base 
B)  The exchange rate 
C)  The inflation rate 
D)  The bank rate 
A)  The monetary base 
B)  The exchange rate 
C)  The inflation rate 
D)  The bank rate

Question 15

Since 1989,the Bank of Canada used ________ as the operating target and ________ as the ultimate goal of monetary policy.

Accepted Answer

A)  the overnight interest rate; the exchange rate 
B)  the overnight interest rate; the inflation rate 
C)  the monetary base; the inflation rate 
D)  None of the above. 
A)  the overnight interest rate; the exchange rate 
B)  the overnight interest rate; the inflation rate 
C)  the monetary base; the inflation rate 
D)  None of the above.

Question 16

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

Question 17

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)  The performance has been quite good. 
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)  The performance has been quite good.

Question 18

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 19

In both New Zealand and Canada,what has happened to the unemployment rate since the countries adopted inflation targeting?

Accepted Answer

A)  The unemployment rate increased sharply. 
B)  The unemployment rate remained constant. 
C)  The unemployment rate has declined substantially after a sharp increase. 
D)  The unemployment rate declined sharply immediately after the inflation targets were adopted. 
A)  The unemployment rate increased sharply. 
B)  The unemployment rate remained constant. 
C)  The unemployment rate has declined substantially after a sharp increase. 
D)  The unemployment rate declined sharply immediately after the inflation targets were adopted.

Question 20

Which of the following is a potential operating instrument for the central bank?

Accepted Answer

A)  Nonborrowed reserves 
B)  The overnight funds rate 
C)  The monetary base 
D)  Each of the above 
A)  Nonborrowed reserves 
B)  The overnight funds rate 
C)  The monetary base 
D)  Each of the above

Exam 18: The Conduct of Monetary Policy: Strategy and Tactics

What are the advantages of monetary targeting?

Which of the following is not an operating instrument?

Fluctuations in the demand for reserves cause the Bank of Canada to lose control over a monetary aggregate if the Bank of Canada targets ________.

During the 1982-1988 period,the Bank of Canada ________.

Interest rates are difficult to measure because ________.

During the 1960s and early 1970s,the Bank of Canada used ________ as the intermediate target(s),to keep the foreign exchange and domestic bonds markets functioning smoothly.

Since 1978,the Bank of Japan has used an interest rate as its daily operating target ________.

During the 1975-1981 period,although the Bank of Canada was successful in keeping actual M1 growth within the target range,________.

The importance of a nominal anchor is to ________.

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

The decision by inflation targeters to choose inflation targets ________ zero reflects the concern of monetary policymakers that particularly ________ inflation can have substantial negative effects on economic growth.

Under monetary targeting,a central bank announces an annual growth rate target for ________.

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.

Which of the following is a potential operating instrument for the central bank?

Since 1989,the Bank of Canada used ________ as the operating target and ________ as the ultimate goal of monetary policy.

Current estimates of NAIRU place it between ________ and ________.

Which of the following is an advantage to inflation targeting?

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

In both New Zealand and Canada,what has happened to the unemployment rate since the countries adopted inflation targeting?

Which of the following is a potential operating instrument for the central bank?

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

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

The ISLM Model

Filters

The decision by inflation targeters to choose inflation targets zero reflects the concern of monetary policymakers that particularly inflation can have substantial negative effects on economic growth.

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.

Since 1989,the Bank of Canada used as the operating target and as the ultimate goal of monetary policy.

Current estimates of NAIRU place it between and .

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