Question 1

The reason Canada fared differently between the first two oil shocks and the third is because ________.

Accepted Answer

A)  a nominal anchor was in place during the third oil shock in 2007 
B)  by 2007 Canada became a net exporter of oil, so Canadians benefitted from higher oil prices 
C)  in 2007, the global financial crisis overshadowed any oil price shocks 
D)  none of the above 
A)  a nominal anchor was in place during the third oil shock in 2007 
B)  by 2007 Canada became a net exporter of oil, so Canadians benefitted from higher oil prices 
C)  in 2007, the global financial crisis overshadowed any oil price shocks 
D)  none of the above

Question 2

In August 1985,the Bolivian government announced ________.

Accepted Answer

A)  it would no longer pay government employees with money 
B)  the New Economic Policy 
C)  a credible nominal anchor 
D)  a change in the head of state 
A)  it would no longer pay government employees with money 
B)  the New Economic Policy 
C)  a credible nominal anchor 
D)  a change in the head of state

Question 3

Explain why the Bank of Canada had a credibility problem during the 1970s.

Accepted Answer

In the early 1970s,the Bank of Canada ac

Question 4

If a negative aggregate demand shock occurs and monetary policy is not credible then ________.

Accepted Answer

A)  economic activity will decrease 
B)  the equilibrium interest rate will rise 
C)  there will be a corresponding autonomous increase in inflation 
D)  none of the above 
A)  economic activity will decrease 
B)  the equilibrium interest rate will rise 
C)  there will be a corresponding autonomous increase in inflation 
D)  none of the above

Question 5

Describe discretionary and nondiscretionary policy in the case of a negative aggregate supply shock to the economy.Use a graph to support your answer.

Accepted Answer

When the economy moves from point 1 to 1

Question 6

Which of the following formed part of the Bolivian government plan to reduce inflation?

Accepted Answer

A)  Daily balancing of the budget 
B)  Contractionary monetary policy 
C)  Creation of a new currency 
D)  nationalization of 10 percent of private industrial activity 
A)  Daily balancing of the budget 
B)  Contractionary monetary policy 
C)  Creation of a new currency 
D)  nationalization of 10 percent of private industrial activity

Question 7

Advocates of nondiscretionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because ________.

Accepted Answer

A)  they regard excessive money growth as the cause of inflation 
B)  they believe that excessive government spending, not excessive monetary growth, is the cause of inflation 
C)  they believe that while unions cause inflation, they are too politically powerful to deal with 
D)  they regard high tax rates as the cause of inflation 
A)  they regard excessive money growth as the cause of inflation 
B)  they believe that excessive government spending, not excessive monetary growth, is the cause of inflation 
C)  they believe that while unions cause inflation, they are too politically powerful to deal with 
D)  they regard high tax rates as the cause of inflation

Question 8

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

A)  it is subject to the Lucas critique 
B)  they are too complicated for the general public to understand 
C)  these types of programs are difficult to implement in practice 
D)  none of the above 
A)  it is subject to the Lucas critique 
B)  they are too complicated for the general public to understand 
C)  these types of programs are difficult to implement in practice 
D)  none of the above

Question 9

The Lucas critique is an attack on the usefulness of ________.

Accepted Answer

A)  conventional econometric models as forecasting tools 
B)  conventional econometric models as indicators of the potential impacts on the economy of particular policies 
C)  rational expectations models of macroeconomic activity 
D)  the relationship between the quantity theory of money and aggregate demand 
A)  conventional econometric models as forecasting tools 
B)  conventional econometric models as indicators of the potential impacts on the economy of particular policies 
C)  rational expectations models of macroeconomic activity 
D)  the relationship between the quantity theory of money and aggregate demand

Question 10

Monetarists believe all of the following except that ________.

Accepted Answer

A)  active government policies are required to restore the economy to full employment 
B)  the Bank of Canada should adopt and follow a money growth rule 
C)  the self-correcting mechanism works quickly because wages are sufficiently flexible 
D)  the aggregate supply curve shifts quickly to restore the economy to the natural rate of unemployment 
A)  active government policies are required to restore the economy to full employment 
B)  the Bank of Canada should adopt and follow a money growth rule 
C)  the self-correcting mechanism works quickly because wages are sufficiently flexible 
D)  the aggregate supply curve shifts quickly to restore the economy to the natural rate of unemployment

Question 11

The political business cycle can lead to ________.

Accepted Answer

A)  expansionary monetary policy 
B)  expansionary fiscal policy 
C)  corruption 
D)  both A and B 
A)  expansionary monetary policy 
B)  expansionary fiscal policy 
C)  corruption 
D)  both A and B

Question 12

Prior to 1980,Canada's inflation rate ________.

Accepted Answer

A)  was growing at a slow and stable rate 
B)  was never considered to be difficult to control 
C)  reached double digits 
D)  was tied to the U.S. inflation rate 
A)  was growing at a slow and stable rate 
B)  was never considered to be difficult to control 
C)  reached double digits 
D)  was tied to the U.S. inflation rate

Question 13

An example of a nominal anchor is ________.

Accepted Answer

A)  the inflation rate 
B)  the real interest rate 
C)  government purchases 
D)  the tax rate 
A)  the inflation rate 
B)  the real interest rate 
C)  government purchases 
D)  the tax rate

Question 14

With a negative aggregate supply shock,monetary policy credibility can ________.

Accepted Answer

A)  produce a better outcome 
B)  set inflation equal to zero 
C)  determine the effective interest rate 
D)  prevent financial malfeasance 
A)  produce a better outcome 
B)  set inflation equal to zero 
C)  determine the effective interest rate 
D)  prevent financial malfeasance

Question 15

The Bank of Canada has not always had a reputation for garnering credibility.These include countervailing monetary policies in ________.

Accepted Answer

A)  early 1970s 
B)  early 1960s 
C)  the course of the Coyne affair 
D)  during the global financial crisis 
A)  early 1970s 
B)  early 1960s 
C)  the course of the Coyne affair 
D)  during the global financial crisis

Question 16

The benefits of a credible nominal anchor include ________.

Accepted Answer

A)  acting like a behaviour rule 
B)  preventing the real business cycle from occurring 
C)  encouraging activist policy 
D)  preventing discretion based actions 
A)  acting like a behaviour rule 
B)  preventing the real business cycle from occurring 
C)  encouraging activist policy 
D)  preventing discretion based actions

Question 17

A negative aggregate demand shock will only impact ________.

Accepted Answer

A)  the equilibrium interest rate 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  none of the above 
A)  the equilibrium interest rate 
B)  the equilibrium inflation rate 
C)  the short run aggregate supply curve 
D)  none of the above

Question 18

Approaches to establishing central bank credibility include ________.

Accepted Answer

A)  continued success at keeping inflation under control 
B)  central bank independence 
C)  appointment of a more conservative central banker 
D)  all of the above 
A)  continued success at keeping inflation under control 
B)  central bank independence 
C)  appointment of a more conservative central banker 
D)  all of the above

Question 19

One example where a rules based approach would have improved the economy is ________.

Accepted Answer

A)  the Great Depression 
B)  the financial crisis in 2007 
C)  the subprime mortgage markets 
D)  derivatives trading 
A)  the Great Depression 
B)  the financial crisis in 2007 
C)  the subprime mortgage markets 
D)  derivatives trading

Question 20

The 1981-1982 recession yielded an unemployment rate of ________.

Accepted Answer

A)  just less than 10 percent 
B)  10 percent 
C)  just over 10 percent 
D)  20 percent 
A)  just less than 10 percent 
B)  10 percent 
C)  just over 10 percent 
D)  20 percent

Exam 26: The Role of Expectations in Monetary Policy

The reason Canada fared differently between the first two oil shocks and the third is because ________.

In August 1985,the Bolivian government announced ________.

Explain why the Bank of Canada had a credibility problem during the 1970s.

If a negative aggregate demand shock occurs and monetary policy is not credible then ________.

Describe discretionary and nondiscretionary policy in the case of a negative aggregate supply shock to the economy.Use a graph to support your answer.

Which of the following formed part of the Bolivian government plan to reduce inflation?

Advocates of nondiscretionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because ________.

One of the drawbacks of rules based monetary policy is ________.

The Lucas critique is an attack on the usefulness of ________.

Monetarists believe all of the following except that ________.

The political business cycle can lead to ________.

Prior to 1980,Canada's inflation rate ________.

An example of a nominal anchor is ________.

With a negative aggregate supply shock,monetary policy credibility can ________.

The Bank of Canada has not always had a reputation for garnering credibility.These include countervailing monetary policies in ________.

The benefits of a credible nominal anchor include ________.

A negative aggregate demand shock will only impact ________.

Approaches to establishing central bank credibility include ________.

One example where a rules based approach would have improved the economy is ________.

The 1981-1982 recession yielded an unemployment rate of ________.

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

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