Question 1

Which of the following is not a requirement in selecting an intermediate target?

Accepted Answer

A)  Measurability 
B)  Controllability 
C)  Flexibility 
D)  Predictability

Question 2

Which of the following is not an element of inflation targeting?

Accepted Answer

A)  A public announcement of medium-term numerical targets for inflation 
B)  An institutional commitment to price stability as the primary long-run goal 
C)  An information-inclusive approach in which only monetary aggregates are used in making decisions about monetary policy 
D)  Increased accountability of the central bank for attaining its inflation objectives

Question 3

Which of the following is a disadvantage 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.

Question 4

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

Question 5

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.

Question 6

During the 1982-1988 period,the Bank of Canada looked at a list of factors in order to design and implement monetary policy.This list included ________.

Accepted Answer

A)  the interest rate 
B)  the exchange rate 
C)  the money supply 
D)  All of the above. 
E)  Only A and B of the above.

Question 7

Why has the ECB seemed to have decided to try to "have its cake and eat it,too"?

Accepted Answer

The answer of Why has the ECB seemed to have...

Question 8

The Bank of Canada can engage in preemptive strikes against a rise in inflation by ________ the overnight rate; it can act preemptively against negative demand shocks by ________ the overnight rate.

Accepted Answer

A)  raising; lowering 
B)  raising; raising 
C)  lowering; lowering 
D)  lowering; raising

Question 9

Which of the following criteria must be satisfied when selecting an intermediate target?

Accepted Answer

A)  The variable must be measurable and frequently available. 
B)  The variable must be controllable with the use of the central bank's policy tools. 
C)  The variable must have a predictable impact on the policy goal. 
D)  Each of the above.

Question 10

Which of the following is the best description of the monetary policy strategy followed by the European Central Bank (ECB)?

Accepted Answer

A)  The ECB follows monetary targeting. 
B)  The ECB follows inflation targeting. 
C)  The ECB has a hybrid strategy with elements of both monetary targeting and inflation targeting. 
D)  The ECB has a Fed-like "just do it" approach.

Question 11

Interest rate stability is desirable because ________.

Accepted Answer

A)  fluctuations in interest rates create uncertainty 
B)  it leads to financial market stability 
C)  stability in the foreign exchange markets 
D)  all of the above

Question 12

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

Question 13

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

Question 14

Inflation targeting has the potential to reduce the likelihood that the central bank will fall into the time-inconsistency trap of trying to ________ output and employment in the short run by pursuing overly ________ monetary policy.

Accepted Answer

A)  lower; tight 
B)  expand; expansionary 
C)  lower; expansionary 
D)  expand; tight

Question 15

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

Accepted Answer

The answer of Describe the time-inconsistency problem as it pertains...

Question 16

The natural rate of unemployment ________.

Accepted Answer

A)  is consistent with full employment 
B)  is equal to zero 
C)  equals structural employment 
D)  is the same as frictional employment

Question 17

Which of the following is an advantage to inflation targeting?

Accepted Answer

A)  There is a delayed signal about achievement of the target. 
B)  Inflation targets could impose a rigid rule on policymakers. 
C)  There is potential for larger output fluctuations. 
D)  It is easily understood by the public.

Question 18

The Bank of Canada adopted inflation targets ________.

Accepted Answer

A)  because the 1982-1988 checklist approach to policy made it difficult for the Bank to control money growth and inflation 
B)  following a three-year campaign to promote price stability as the long-term goal of monetary policy 
C)  by announcing explicit targets for the inflation rate, rather than for money growth 
D)  All of the above.

Question 19

The rate of inflation tends to remain constant when ________.

Accepted Answer

A)  the unemployment rate is above the NAIRU 
B)  the unemployment rate equals the NAIRU 
C)  the unemployment rate is below the NAIRU 
D)  the unemployment rate increases faster than the NAIRU increases

Question 20

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.

Exam 18: The Conduct of Monetary Policy: Strategy and Tactics