Question 1

According to the Taylor rule, the overnight interest rate should be set at ________.

Accepted Answer

A) π + iₒᵣ - 0.5(π - π*) - 0.5(y - y) 
B) π + iₒᵣ + 0.5(π - π*) + 0.5(y - y) 
C) r + π 
D) r - π 
A) π + iₒᵣ - 0.5(π - π*) - 0.5(y - y) 
B) π + iₒᵣ + 0.5(π - π*) + 0.5(y - y) 
C) r + π 
D) r - π

Question 2

Which of the following is not an operating instrument?

Accepted Answer

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

Question 3

Which of the following is a disadvantage of inflation targeting?

Accepted Answer

A) There is transparency. 
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 transparency. 
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 4

Did the Great Moderation protect economies from financial instability.

Accepted Answer

No, The apparent stability of

Question 5

The two types of asset-price bubbles are ________ and ________ bubbles.

Accepted Answer

A) credit-driven; debt driven 
B) rational; optimistic 
C) irrational exuberance; optimistic 
D) credit-driven; irrational exuberance 
A) credit-driven; debt driven 
B) rational; optimistic 
C) irrational exuberance; optimistic 
D) credit-driven; irrational exuberance

Question 6

Describe the time-inconsistency problem as it pertains to monetary policy outcomes.

Accepted Answer

The time-inconsistency problem occurs wh

Question 7

The target inflation range set by the Bank of England is ________.

Accepted Answer

A) 1-4 percent 
B) 1-3 percent 
C) 2-4 percent 
D) 2-3 percent 
A) 1-4 percent 
B) 1-3 percent 
C) 2-4 percent 
D) 2-3 percent

Question 8

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

Accepted Answer

A) was concerned about inflation 
B) was still very concerned with achieving interest rate stability 
C) was committed to the real bills doctrine 
D) was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly 
A) was concerned about inflation 
B) was still very concerned with achieving interest rate stability 
C) was committed to the real bills doctrine 
D) was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly

Question 9

During the 1975-1981 period, the Bank of Canada decided to target the growth rate of M1 because it ________.

Accepted Answer

A) was the most prominent measure of money 
B) had a stable demand 
C) had a predictable relationship with income and prices 
D) All of the above. 
A) was the most prominent measure of money 
B) had a stable demand 
C) had a predictable relationship with income and prices 
D) All of the above.

Question 10

Give five reasons why central banks should not try to prick an asset-price bubble.

Accepted Answer

The answer should include (1) a discussi

Question 11

Which of the following is a NOT an advantage to monetary targeting?

Accepted Answer

A) It relies on a stable money-inflation relationship. 
B) There is a delayed signal about the achievement of a target. 
C) It implies larger output fluctuations. 
D) It implies a lack of transparency. 
A) It relies on a stable money-inflation relationship. 
B) There is a delayed signal about the achievement of a target. 
C) It implies larger output fluctuations. 
D) It implies a lack of transparency.

Question 12

Compared to the United States, Japan's experience with monetary targeting performed ________.

Accepted Answer

A) better with regard to the inflation rate and output fluctuations 
B) worse with regard to the inflation rate and output fluctuations 
C) better with regard to the inflation rate, but worse with regard to output fluctuations 
D) worse with regard to the inflation rate, but better with regard to output fluctuations 
A) better with regard to the inflation rate and output fluctuations 
B) worse with regard to the inflation rate and output fluctuations 
C) better with regard to the inflation rate, but worse with regard to output fluctuations 
D) worse with regard to the inflation rate, but better with regard to output fluctuations

Question 13

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

Accepted Answer

When nonborrowed reserves are held const

Question 14

Price stability is defined as ________.

Accepted Answer

A) low inflation 
B) low and stable inflation 
C) stable inflation 
D) core inflation 
A) low inflation 
B) low and stable inflation 
C) stable inflation 
D) core inflation

Question 15

Current estimates of NAIRU place it between ________ and ________.

Accepted Answer

A) 4 percent; 6 percent 
B) 4 percent; 20 percent 
C) 1 percent; 3 percent 
D) 1 percent; 4 percent 
A) 4 percent; 6 percent 
B) 4 percent; 20 percent 
C) 1 percent; 3 percent 
D) 1 percent; 4 percent

Question 16

In the 1975-1981 period, the Bank of Canada selected an interest rate as an operating target than a reserve aggregate primarily because it ________.

Accepted Answer

A) had no interest in targeting a monetary aggregate, as evidenced by its unwillingness to target a reserve aggregate 
B) was still very concerned with interest rate stability 
C) was committed to the real bills doctrine 
D) was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly 
E) None of the above 
A) had no interest in targeting a monetary aggregate, as evidenced by its unwillingness to target a reserve aggregate 
B) was still very concerned with interest rate stability 
C) was committed to the real bills doctrine 
D) was committed to keeping the foreign exchange and domestic bonds markets functioning smoothly 
E) None of the above

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

If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because ________.

Accepted Answer

A) of fluctuations in the demand for reserves 
B) of fluctuations in the consumption function 
C) bond values will tend to remain stable 
D) of fluctuations in the business cycle 
A) of fluctuations in the demand for reserves 
B) of fluctuations in the consumption function 
C) bond values will tend to remain stable 
D) of fluctuations in the business cycle

Question 19

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 20

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Accepted Answer

A) the interest rate; the exchange rate 
B) the monetary base; the interest rate 
C) the short-term interest rate; the long-term interest rate 
D) the interest rate; the money supply 
A) the interest rate; the exchange rate 
B) the monetary base; the interest rate 
C) the short-term interest rate; the long-term interest rate 
D) the interest rate; the money supply

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

According to the Taylor rule, the overnight interest rate should be set at ________.

Which of the following is not an operating instrument?

Which of the following is a disadvantage of inflation targeting?

Did the Great Moderation protect economies from financial instability.

The two types of asset-price bubbles are ________ and ________ bubbles.

Describe the time-inconsistency problem as it pertains to monetary policy outcomes.

The target inflation range set by the Bank of England is ________.

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

During the 1975-1981 period, the Bank of Canada decided to target the growth rate of M1 because it ________.

Give five reasons why central banks should not try to prick an asset-price bubble.

Which of the following is a NOT an advantage to monetary targeting?

Compared to the United States, Japan's experience with monetary targeting performed ________.

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

Price stability is defined as ________.

Current estimates of NAIRU place it between ________ and ________.

In the 1975-1981 period, the Bank of Canada selected an interest rate as an operating target than a reserve aggregate primarily because it ________.

High unemployment ________.

If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because ________.

Inflation targeting includes ________.

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

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 two types of asset-price bubbles are and bubbles.

Current estimates of NAIRU place it between and .

During the 1982-1988 period, the Bank of Canada used as the operating target and as the intermediate target.