Question 1

Which of the following is not an operating instrument?

Accepted Answer

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

Question 2

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)  There is transparency. 
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)  There is transparency.

Question 3

What criteria apply when choosing a policy instrument?

Accepted Answer

Three criteria apply when choosing a pol

Question 4

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

Accepted Answer

A)  core CPI excludes volatile components, such as food, energy, and the effect of indirect taxes 
B)  core inflation is useful in assessing whether trend inflation is on track for the medium term 
C)  Both A and B of the above. 
D)  None of the above. 
A)  core CPI excludes volatile components, such as food, energy, and the effect of indirect taxes 
B)  core inflation is useful in assessing whether trend inflation is on track for the medium term 
C)  Both A and B of the above. 
D)  None of the above.

Question 5

During the 1960s and early 1970s,the Bank of Canada used ________ as the intermediate target in the conduct of monetary policy.

Accepted Answer

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

Question 6

During the years 1979 to 1982,the Federal Reserve's announced policy was monetary targeting.During this time period the Federal Reserve ________.

Accepted Answer

A)  hit all of their monetary targets 
B)  did not hit any of their monetary targets because it is believed that controlling the money supply was not the intent of the Federal Reserve 
C)  did not hit any of their monetary targets because they were unrealistic 
D)  hit about half of their monetary targets 
A)  hit all of their monetary targets 
B)  did not hit any of their monetary targets because it is believed that controlling the money supply was not the intent of the Federal Reserve 
C)  did not hit any of their monetary targets because they were unrealistic 
D)  hit about half of their monetary targets

Question 7

According to the Taylor Principle,when the inflation rate rises,the nominal interest rate should be ________ by ________ than the inflation rate increase.

Accepted Answer

A)  increased; more 
B)  increased; less 
C)  decreased; more 
D)  decreased; less 
A)  increased; more 
B)  increased; less 
C)  decreased; more 
D)  decreased; less

Question 8

Using Taylor's rule,when the equilibrium real overnight rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal overnight rate target should be ________.

Accepted Answer

A)  5 percent 
B)  5.5 percent 
C)  6 percent 
D)  6.5 percent 
A)  5 percent 
B)  5.5 percent 
C)  6 percent 
D)  6.5 percent

Question 9

Which of the following is an advantage to monetary targeting?

Accepted Answer

A)  There is almost immediate accountability. 
B)  It does not rely on a stable money-inflation relationship. 
C)  It implies lack of transparency. 
D)  It implies smaller output fluctuations. 
A)  There is almost immediate accountability. 
B)  It does not rely on a stable money-inflation relationship. 
C)  It implies lack of transparency. 
D)  It implies smaller output fluctuations.

Question 10

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 11

Inflation targeting includes ________.

Accepted Answer

A)  a public announcement of medium-term targets for inflation 
B)  an institutional commitment to price stability as the primary long run goal 
C)  an information-inclusive approach in which many variables are used in making decisions about monetary policy 
D)  all of the above 
A)  a public announcement of medium-term targets for inflation 
B)  an institutional commitment to price stability as the primary long run goal 
C)  an information-inclusive approach in which many variables are used in making decisions about monetary policy 
D)  all of the above

Question 12

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.

Question 13

Which of the following is a 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 imposes a rigid rule. 
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 imposes a rigid rule. 
D)  Inflation targeting reduces the effects of inflation shocks.

Question 14

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 15

What are the disadvantages inflation targeting?

Accepted Answer

The disadvantages of inflation targeting

Question 16

Canada's adoption of inflation targeting led to an unemployment rate of ________.

Accepted Answer

A)  above 10 percent 
B)  nearly 8 percent 
C)  over 5 percent 
D)  5 percent 
A)  above 10 percent 
B)  nearly 8 percent 
C)  over 5 percent 
D)  5 percent

Question 17

High unemployment ________.

Accepted Answer

A)  results in lower GDP 
B)  leads to increased human misery 
C)  cannot be a target of monetary policy 
D)  A and B only 
A)  results in lower GDP 
B)  leads to increased human misery 
C)  cannot be a target of monetary policy 
D)  A and B only

Question 18

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 19

The nominal anchor ________.

Accepted Answer

A)  acts like behavioural rule 
B)  leads to inflation 
C)  creates the time-inconsistency problem 
D)  avoids the natural rate of unemployment 
A)  acts like behavioural rule 
B)  leads to inflation 
C)  creates the time-inconsistency problem 
D)  avoids the natural rate of unemployment

Question 20

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)  the inflation rate remained high 
C)  the demand for M1 became unstable 
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)  the inflation rate remained high 
C)  the demand for M1 became unstable 
D)  All of the above.

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

Which of the following is not an operating instrument?

Which of the following is an advantage to inflation targeting?

What criteria apply when choosing a policy instrument?

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

During the 1960s and early 1970s,the Bank of Canada used ________ as the intermediate target in the conduct of monetary policy.

During the years 1979 to 1982,the Federal Reserve's announced policy was monetary targeting.During this time period the Federal Reserve ________.

According to the Taylor Principle,when the inflation rate rises,the nominal interest rate should be ________ by ________ than the inflation rate increase.

Using Taylor's rule,when the equilibrium real overnight rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal overnight rate target should be ________.

Which of the following is an advantage to monetary targeting?

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

Inflation targeting includes ________.

Which of the following is disadvantage of inflation targeting?

Which of the following is a disadvantage of inflation targeting?

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

What are the disadvantages inflation targeting?

Canada's adoption of inflation targeting led to an unemployment rate of ________.

High unemployment ________.

International policy coordination refers to ________.

The nominal anchor ________.

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

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

According to the Taylor Principle,when the inflation rate rises,the nominal interest rate should be by than the inflation rate increase.