Question 1

The monetarists complained that early Keynesian structural models tended to ignore the impact of monetary policy changes on ________.

Accepted Answer

A)  interest rates 
B)  investment spending 
C)  consumption spending 
D)  capital goods spending 
A)  interest rates 
B)  investment spending 
C)  consumption spending 
D)  capital goods spending C

Question 2

In the late 1990s and early 2000s,the Japanese economy has experienced ________.

Accepted Answer

A)  easy monetary policy as indicated by falling nominal interest rates 
B)  easy monetary policy as indicated by short-term interest rates near zero 
C)  tight monetary policy as indicated by falling asset prices 
D)  tight monetary policy as indicated by short-term interest rates near zero 
A)  easy monetary policy as indicated by falling nominal interest rates 
B)  easy monetary policy as indicated by short-term interest rates near zero 
C)  tight monetary policy as indicated by falling asset prices 
D)  tight monetary policy as indicated by short-term interest rates near zero C

Question 3

Explain what we call structural model evidence in describing the transmission mechanism of monetary policy.

Accepted Answer

When we build a structural model to examine the evidence on the effect of changes in the money supply on economic activity,we are using a collection of equations that describe the behaviour of firms and consumers in many sectors of the economy.These equations then show the channels through which monetary and fiscal policy affect aggregate output and spending.A structural model might have behavioural equations that describe the working of monetary policy through many variables.Structural model evidence on the relationship between M and Y looks at empirical evidence on the specific channels of monetary influence,such as the link between interest rates and investment spending.

Question 4

The monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending is called the ________.

Accepted Answer

A)  traditional interest-rate channel 
B)  Tobins' q theory 
C)  wealth effects 
D)  cash flow channel 
A)  traditional interest-rate channel 
B)  Tobins' q theory 
C)  wealth effects 
D)  cash flow channel

Question 5

________ nominal interest rates do ________ indicate that the cost of borrowing is ________.

Accepted Answer

A)  Low; not necessarily; low 
B)  High; necessarily; high 
C)  Low; necessarily; low 
D)  Both B and C 
A)  Low; not necessarily; low 
B)  High; necessarily; high 
C)  Low; necessarily; low 
D)  Both B and C

Question 6

Because ________ evidence is of a ________ nature,there is always the possibility of reverse causation,in which output growth causes money growth.

Accepted Answer

A)  historical; structural 
B)  statistical; structural 
C)  timing; structural 
D)  timing; reduced-form 
A)  historical; structural 
B)  statistical; structural 
C)  timing; structural 
D)  timing; reduced-form

Question 7

The early Keynesians of the 1950s and early 1960s believed that ________.

Accepted Answer

A)  monetary policy does not matter at all 
B)  fiscal policy matters 
C)  monetary policy does matter 
D)  Both A and B 
A)  monetary policy does not matter at all 
B)  fiscal policy matters 
C)  monetary policy does matter 
D)  Both A and B

Question 8

When using reduced-form evidence to evaluate monetary policy and find that M affects Y,________.

Accepted Answer

A)  it is possible that we may suffer from reverse causation 
B)  we are sure that there is no reverse causation 
C)  there is never adverse selection 
D)  there is never moral hazard 
A)  it is possible that we may suffer from reverse causation 
B)  we are sure that there is no reverse causation 
C)  there is never adverse selection 
D)  there is never moral hazard

Question 9

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.

Accepted Answer

A)  nominal interest rates; investment spending 
B)  real interest rates; investment spending 
C)  money supply; aggregate output 
D)  investment spending; aggregate output 
A)  nominal interest rates; investment spending 
B)  real interest rates; investment spending 
C)  money supply; aggregate output 
D)  investment spending; aggregate output

Question 10

The monetarist ________ evidence in which declines in money growth are followed by recessions provides the strongest support for their position that monetary policy matters.

Accepted Answer

A)  statistical 
B)  historical 
C)  timing 
D)  structural 
A)  statistical 
B)  historical 
C)  timing 
D)  structural

Question 11

Movements of real interest rates indicate that,contrary to the early Keynesians' beliefs,________ policy was ________ during the Great Depression.

Accepted Answer

A)  fiscal; tight 
B)  fiscal; easy 
C)  monetary; tight 
D)  monetary; easy 
A)  fiscal; tight 
B)  fiscal; easy 
C)  monetary; tight 
D)  monetary; easy

Question 12

What are the advantages of reduced-form evidence?

Accepted Answer

The main advantage of reduced-form evide

Question 13

Monetarists' preference for reduced-form models is based on their belief that ________.

Accepted Answer

A)  reverse causation is a problem 
B)  structural models may understate money's effect on economic activity 
C)  money supply changes are always endogenous 
D)  monetary policy affects only investment spending 
A)  reverse causation is a problem 
B)  structural models may understate money's effect on economic activity 
C)  money supply changes are always endogenous 
D)  monetary policy affects only investment spending

Question 14

A basic principle in economics is that ________ does not necessarily imply ________.

Accepted Answer

A)  correlation; causation 
B)  correlation; significance 
C)  causation; correlation 
D)  Both A and C 
A)  correlation; causation 
B)  correlation; significance 
C)  causation; correlation 
D)  Both A and C

Question 15

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.Which of the following is not one of these lessons?

Accepted Answer

A)  Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy. 
B)  Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C)  Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long-run goal for monetary policy. 
D)  Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms. 
A)  Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy. 
B)  Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C)  Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long-run goal for monetary policy. 
D)  Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

Question 16

The monetarist statistical evidence examines the correlations between both ________ and ________ with ________.

Accepted Answer

A)  money; aggregate spending; the unemployment rate 
B)  money; autonomous expenditures; the unemployment rate 
C)  money; consumption spending; aggregate spending 
D)  money; autonomous expenditures; aggregate spending 
A)  money; aggregate spending; the unemployment rate 
B)  money; autonomous expenditures; the unemployment rate 
C)  money; consumption spending; aggregate spending 
D)  money; autonomous expenditures; aggregate spending

Question 17

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

Accepted Answer

A)  lowering real; decreasing 
B)  lowering real; increasing 
C)  raising nominal; increasing 
D)  raising real; increasing 
A)  lowering real; decreasing 
B)  lowering real; increasing 
C)  raising nominal; increasing 
D)  raising real; increasing

Question 18

Monetarists directly study the link between money and economic activity using ________.

Accepted Answer

A)  structural models 
B)  reduced-form models 
C)  scientific models 
D)  experimental models 
A)  structural models 
B)  reduced-form models 
C)  scientific models 
D)  experimental models

Question 19

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Accepted Answer

A)  fiscal; ineffective; monetary 
B)  monetary; ineffective; fiscal 
C)  monetary; potent; monetary 
D)  fiscal; too potent; monetary 
A)  fiscal; ineffective; monetary 
B)  monetary; ineffective; fiscal 
C)  monetary; potent; monetary 
D)  fiscal; too potent; monetary

Question 20

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.These lessons include:

Accepted Answer

A)  Monetary policy can be highly effective in reviving a weak economy so long as short-term interest rates are not too close to zero. 
B)  Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy. 
C)  Other asset prices beside those on short-term debt instruments contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms. 
D)  Only A and B of the above. 
A)  Monetary policy can be highly effective in reviving a weak economy so long as short-term interest rates are not too close to zero. 
B)  Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy. 
C)  Other asset prices beside those on short-term debt instruments contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms. 
D)  Only A and B of the above.

Exam 27: Transmission Mechanisms of Monetary Policy

The monetarists complained that early Keynesian structural models tended to ignore the impact of monetary policy changes on ________.

In the late 1990s and early 2000s,the Japanese economy has experienced ________.

Explain what we call structural model evidence in describing the transmission mechanism of monetary policy.

The monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending is called the ________.

________ nominal interest rates do ________ indicate that the cost of borrowing is ________.

Because ________ evidence is of a ________ nature,there is always the possibility of reverse causation,in which output growth causes money growth.

The early Keynesians of the 1950s and early 1960s believed that ________.

When using reduced-form evidence to evaluate monetary policy and find that M affects Y,________.

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.

The monetarist ________ evidence in which declines in money growth are followed by recessions provides the strongest support for their position that monetary policy matters.

Movements of real interest rates indicate that,contrary to the early Keynesians' beliefs,________ policy was ________ during the Great Depression.

What are the advantages of reduced-form evidence?

Monetarists' preference for reduced-form models is based on their belief that ________.

A basic principle in economics is that ________ does not necessarily imply ________.

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.Which of the following is not one of these lessons?

The monetarist statistical evidence examines the correlations between both ________ and ________ with ________.

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

Monetarists directly study the link between money and economic activity using ________.

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.These lessons include:

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

The Role of Expectations in Monetary Policy

The ISLM Model

Filters

nominal interest rates do indicate that the cost of borrowing is .

Because evidence is of a nature,there is always the possibility of reverse causation,in which output growth causes money growth.

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in and .

Movements of real interest rates indicate that,contrary to the early Keynesians' beliefs, policy was during the Great Depression.

A basic principle in economics is that does not necessarily imply .

The monetarist statistical evidence examines the correlations between both and with .

A contractionary monetary policy decreases net exports by interest rates and the value of the dollar.

Early Keynesians felt that policy was ,so they stressed the importance of policy.