Exam 25: The Role of Expectations in Monetary Policy

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

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

Describe the two main benefits of a credible nominal anchor.

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand, thereby strengthening the case for ________ policy.

Approaches to establishing central bank credibility include ________.

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 ________.

Suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target.

A credible, nonaccommodating policy rule has the ________ that it makes a cost-push by workers ________ likely and thus helps to reduce the output loss from controlling inflation.

A rule that is advocated by the monetarists is the ________ rule.

In the first half of 1985, Bolivia's inflation rate was approximately ________.

The benefits of a credible nominal anchor include ________.

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.

Lucas argues that when policies change, expectations will change thereby ________.

The three big oil price shocks occurred in ________.

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.

An example of a positive aggregate demand shock is ________.

The benefits of a credible nominal anchor include ________.

Explain how the impacts of a positive aggregate demand shock can be mitigated by monetary policy credibility.

Monetarists argue that the Bank of Canada should pursue ________.

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