Exam 11: Monetary Policy

What problems can high inflation rates cause for the economy?

Buying a house during a recession may be a good idea if your job seems secure because the Bank of Canada often lowers interest rates during a recession.

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the overnight lending target rate ________ the sum of the current inflation rate plus the real equilibrium overnight interest rate.

The Taylor Principle says that when the overnight inflation rate increases by more than the increase in the inflation rate, then the real interest rate would decline, stimulating economic activity and leading to more inflation.

Prior to 1970, mortgages were ________ resold in the secondary market.

While many analysts defended the actions taken by the U.S.Federal Reserve and the U.S.Treasury to respond to the financial crisis in 2008, others were critical of these actions.The critics were concerned that by not allowing large firms to fail

When housing prices fall, as they do after a housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Table 11.5 -Refer to Table 11.5.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the Bank of Canada does not use monetary policy.If the Bank of Canada uses monetary policy successfully to keep real GDP at its potential level in 2018, which of the following will be higher than if the Bank of Canada had taken no action?

The Bank of Canada could target both the money supply and the interest rate at the same time if it controlled money demand along with money supply.

The rate of interest banks charge other banks for overnight loans of reserves is the

By the height of the U.S.housing bubble in 2005 and early 2006, lenders had greatly loosened the standards for obtaining a mortgage loan, with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

If the Bank of Canada pursues expansionary monetary policy, then

When the price of a financial asset ________ its interest rate will ________.

Since World War II, the Bank of Canada has not been involved in carrying out monetary policy.

A monetary policy target is a variable that

When the Bank of Canada uses contractionary policy,

Table 11.1 -Refer to Table 11.1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2020 if the Bank of Canada does not use monetary policy.Which of the following policies makes sense if the Bank of Canada wants to keep real GDP at its potential level in 2020?

The larger the fraction of an investment financed by borrowing

Which of the following would most likely induce the Bank of Canada to conduct expansionary monetary policy?

Figure 11.12 Alt text for Figure 11.12: In figure 11.12, a graph comparing real GDP and price level. Long description for Figure 11.12: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI, 2002 = 100).4 lines are shown; AD1, AD2, LRAS, SRAS.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope but is plotted to the right.Line SRAS begins in the bottom left corner and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and intersects lines AD1 and SRAS at point A.Lines AD2 and SRAS intersect at point B. -Refer to Figure 11.12.In the figure above, suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Bank of Canada?