Question 1

Did the financial crisis reveal that developments in the financial sector were less important than previously thought?

Accepted Answer

No. Financial developments had very significant impacts on the economy and that financial frictions could have a major disruptive impact on the economies of many countries.

Question 2

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 D

Question 3

Explain and demonstrate graphically how targeting the overnight rate can result in fluctuations in nonborrowed reserves.

Accepted Answer

With a overnight rate target, fluctuations in demand for reserves require similar changes in the nonborrowed reserves to keep the overnight rate constant.

Question 4

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 5

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 6

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

Accepted Answer

A) The monetary base 
B) The M1 money supply 
C) GDP 
D) The Bank rate 
A) The monetary base 
B) The M1 money supply 
C) GDP 
D) The Bank rate

Question 7

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) There is a delayed signal on the achievement of the target. 
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) There is a delayed signal on the achievement of the target. 
D) Inflation targeting reduces the effects of inflation shocks.

Question 8

A potential policy instrument for the Bank of Canada is ________.

Accepted Answer

A) the monetary base 
B) borrowed reserves 
C) the overnight funds rate 
D) the nonborrowed monetary base 
E) All of the above 
A) the monetary base 
B) borrowed reserves 
C) the overnight funds rate 
D) the nonborrowed monetary base 
E) All of the above

Question 9

The natural rate of output is also known as ________.

Accepted Answer

A) potential output 
B) NAIRU 
C) structural output 
D) GDP 
A) potential output 
B) NAIRU 
C) structural output 
D) GDP

Question 10

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 11

Due to the lack of timely data for the price level and economic growth, the Bank of Canada's strategy ________.

Accepted Answer

A) targets the exchange rate, since the Bank of Canada can control this variable 
B) targets the price of gold, since it is closely related to economic activity 
C) uses an intermediate target, such as an interest rate 
D) stabilizes the consumer price index, since the Bank of Canada can control the CPI 
A) targets the exchange rate, since the Bank of Canada can control this variable 
B) targets the price of gold, since it is closely related to economic activity 
C) uses an intermediate target, such as an interest rate 
D) stabilizes the consumer price index, since the Bank of Canada can control the CPI

Question 12

Peak inflation in the United Kingdom was ________ in ________.

Accepted Answer

A) 9 percent; 1991 
B) 4 percent; 1997 
C) 12 percent; 1991 
D) 8 percent; 1995 
A) 9 percent; 1991 
B) 4 percent; 1997 
C) 12 percent; 1991 
D) 8 percent; 1995

Question 13

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 14

The first country to adopt inflation targeting was ________.

Accepted Answer

A) the United Kingdom 
B) Canada 
C) New Zealand 
D) Australia 
A) the United Kingdom 
B) Canada 
C) New Zealand 
D) Australia

Question 15

The midpoint of the Bank of Canada's inflation target range is ________.

Accepted Answer

A) 3 percent 
B) 2 percent 
C) 1 percent 
D) None of the above. 
A) 3 percent 
B) 2 percent 
C) 1 percent 
D) None of the above.

Question 16

Which of the following countries have hierarchical mandates?

Accepted Answer

A) Reserve Bank of New Zealand 
B) Bank of Canada 
C) Bank of England 
D) all of the above 
A) Reserve Bank of New Zealand 
B) Bank of Canada 
C) Bank of England 
D) all of the above

Question 17

Which of the following criteria need not be satisfied for choosing an intermediate target?

Accepted Answer

A) The variable must be measurable. 
B) The variable must be controllable. 
C) The variable must be predictable. 
D) The variable must be stable. 
A) The variable must be measurable. 
B) The variable must be controllable. 
C) The variable must be predictable. 
D) The variable must be stable.

Question 18

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 19

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 20

Increases in interest rates ________.

Accepted Answer

A) cause large capital losses 
B) could lead to bank failures 
C) affect consumers' willingness to buy houses 
D) all of the above 
A) cause large capital losses 
B) could lead to bank failures 
C) affect consumers' willingness to buy houses 
D) all of the above

Exam 17: The Conduct of Monetary Policy: Strategy and Tactics

Did the financial crisis reveal that developments in the financial sector were less important than previously thought?

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.

Explain and demonstrate graphically how targeting the overnight rate can result in fluctuations in nonborrowed reserves.

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

The importance of a nominal anchor is to ________.

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

Which of the following is a disadvantage of inflation targeting?

A potential policy instrument for the Bank of Canada is ________.

The natural rate of output is also known as ________.

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

Due to the lack of timely data for the price level and economic growth, the Bank of Canada's strategy ________.

Peak inflation in the United Kingdom was ________ in ________.

Which of the following is not an operating instrument?

The first country to adopt inflation targeting was ________.

The midpoint of the Bank of Canada's inflation target range is ________.

Which of the following countries have hierarchical mandates?

Which of the following criteria need not be satisfied for choosing an intermediate target?

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

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.

Increases in interest rates ________.

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

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

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.

Peak inflation in the United Kingdom was in .

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

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.