Question 1

The interest rate thought to have the most important impact on aggregate demand is the ________.

Accepted Answer

A)  short-term interest rate 
B)  T-bill rate 
C)  rate on 90-day CDs 
D)  long-term interest rate 
A)  short-term interest rate 
B)  T-bill rate 
C)  rate on 90-day CDs 
D)  long-term interest rate

Question 2

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 3

An example of a negative supply shock is ________.

Accepted Answer

A)  carbon cap-and-trade program 
B)  a rapid increase in energy costs 
C)  an fall in the price of oil 
D)  the shale gas revolution 
A)  carbon cap-and-trade program 
B)  a rapid increase in energy costs 
C)  an fall in the price of oil 
D)  the shale gas revolution

Question 4

Describe the two main benefits of a credible nominal anchor.

Accepted Answer

First,a credible nominal anchor acts lik

Question 5

The global economic crisis that arose in October 2008 was the result of ________.

Accepted Answer

A)  higher oil prices 
B)  the collapse of the subprime mortgage market 
C)  the European debt crisis 
D)  fiscal and monetary issues stemming from the US debt ceiling 
A)  higher oil prices 
B)  the collapse of the subprime mortgage market 
C)  the European debt crisis 
D)  fiscal and monetary issues stemming from the US debt ceiling

Question 6

An example of a rule used in non-discretionary monetary policy is ________.

Accepted Answer

A)  the Taylor rule 
B)  the Taylor principle 
C)  Keynesian rule 
D)  interest rate consistency 
A)  the Taylor rule 
B)  the Taylor principle 
C)  Keynesian rule 
D)  interest rate consistency

Question 7

How did Canada win the battle against inflation?

Accepted Answer

The Bank of Canada battled against doubl

Question 8

The difference in outcomes occurring with a credible nominal anchor and without one,given a positive aggregate demand shock is that ________.

Accepted Answer

A)  with the credible policy there is no shift in the aggregate supply curve 
B)  there is no difference but credibility provides national security 
C)  without credible policy, inflation will continue to spiral upwards 
D)  with credible policy, the aggregate supply curve shifts back quickly 
A)  with the credible policy there is no shift in the aggregate supply curve 
B)  there is no difference but credibility provides national security 
C)  without credible policy, inflation will continue to spiral upwards 
D)  with credible policy, the aggregate supply curve shifts back quickly

Question 9

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Accepted Answer

A)  Constrained discretion 
B)  A policy rule 
C)  A discretionary policy 
D)  The Taylor rule 
A)  Constrained discretion 
B)  A policy rule 
C)  A discretionary policy 
D)  The Taylor rule

Question 10

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as ________.

Accepted Answer

A)  the monetarist revolution 
B)  the Lucas critique 
C)  public choice theory 
D)  new Keynesian theory 
A)  the monetarist revolution 
B)  the Lucas critique 
C)  public choice theory 
D)  new Keynesian theory

Question 11

Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies,most economists agree that ________.

Accepted Answer

A)  stabilization policies proved more difficult in practice than many economists had expected 
B)  stabilization policies proved not to be inflationary 
C)  the nondiscretionary policymakers were right in believing that the private economy is inherently stable 
D)  the discretionary policymakers were right in believing that the private economy is inherently stable 
A)  stabilization policies proved more difficult in practice than many economists had expected 
B)  stabilization policies proved not to be inflationary 
C)  the nondiscretionary policymakers were right in believing that the private economy is inherently stable 
D)  the discretionary policymakers were right in believing that the private economy is inherently stable

Question 12

The best way to keep inflation under control is to ________.

Accepted Answer

A)  abandon discretionary policy 
B)  abandon expansionary policy 
C)  invoke activist solutions 
D)  both A and B 
A)  abandon discretionary policy 
B)  abandon expansionary policy 
C)  invoke activist solutions 
D)  both A and B

Question 13

The difference in outcomes occurring with a credible nominal anchor and without one,given a negative aggregate supply shock is that ________.

Accepted Answer

A)  the overall economic outlook is better 
B)  there is no difference but credibility provides national security 
C)  without credible policy, inflation will continue to spiral upwards 
D)  with credible policy, the aggregate supply curve shifts back quickly 
A)  the overall economic outlook is better 
B)  there is no difference but credibility provides national security 
C)  without credible policy, inflation will continue to spiral upwards 
D)  with credible policy, the aggregate supply curve shifts back quickly

Question 14

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

Accepted Answer

A)  a policy of variable money supply growth 
B)  supply-side policy 
C)  demand-management policy 
D)  a constant-money-growth-rate rule 
A)  a policy of variable money supply growth 
B)  supply-side policy 
C)  demand-management policy 
D)  a constant-money-growth-rate rule

Question 15

Provide several ways that the central bank could establish credibility.

Accepted Answer

Some ways in which the central bank coul

Question 16

Between 1981 and 1981,Canada experienced ________.

Accepted Answer

A)  a reduction in inflation 
B)  a gradual increase in inflation 
C)  a sharp increase in inflation 
D)  lower than average interest rates 
A)  a reduction in inflation 
B)  a gradual increase in inflation 
C)  a sharp increase in inflation 
D)  lower than average interest rates

Question 17

The oil shock in 2007 ________.

Accepted Answer

A)  had little impact on the inflation rate in Canada 
B)  led to a sharp increase in the inflation rate 
C)  did not impact Canadian output 
D)  was beneficial to the Canadian economy because Canada is a net exporter of oil 
A)  had little impact on the inflation rate in Canada 
B)  led to a sharp increase in the inflation rate 
C)  did not impact Canadian output 
D)  was beneficial to the Canadian economy because Canada is a net exporter of oil

Question 18

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

Accepted Answer

A)  supply-side 
B)  discretionary 
C)  demand-management 
D)  nondiscretionary 
A)  supply-side 
B)  discretionary 
C)  demand-management 
D)  nondiscretionary

Question 19

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 20

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

Exam 26: The Role of Expectations in Monetary Policy

The interest rate thought to have the most important impact on aggregate demand is the ________.

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

An example of a negative supply shock is ________.

Describe the two main benefits of a credible nominal anchor.

The global economic crisis that arose in October 2008 was the result of ________.

An example of a rule used in non-discretionary monetary policy is ________.

How did Canada win the battle against inflation?

The difference in outcomes occurring with a credible nominal anchor and without one,given a positive aggregate demand shock is that ________.

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as ________.

Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies,most economists agree that ________.

The best way to keep inflation under control is to ________.

The difference in outcomes occurring with a credible nominal anchor and without one,given a negative aggregate supply shock is that ________.

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

Provide several ways that the central bank could establish credibility.

Between 1981 and 1981,Canada experienced ________.

The oil shock in 2007 ________.

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

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.

The Lucas critique indicates that ________.

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 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

The ISLM Model

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.