Question 1

What criteria apply when choosing a policy instrument?

Accepted Answer

The answer of What criteria apply when choosing a policy...

Question 2

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 3

Why is the zero lower bound on interest rates a serious problem?

Accepted Answer

The answer of Why is the zero lower bound on...

Question 4

When interest rates in the United States increased sharply in late 1979, the Bank of Canada responded by an extremely restrictive monetary policy to ________.

Accepted Answer

A) resist depreciation of the Canadian dollar 
B) resist the possible inflationary shock from import prices 
C) A and B only. 
D) None of the above.

Question 5

Concerns about a dual mandate include ________.

Accepted Answer

A) over expansionary policy 
B) policies that lead to large output fluctuations 
C) time-inconsistency problems 
D) decreases in output and unemployment

Question 6

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in the CPI, because the CPI ________.

Accepted Answer

A) is the most commonly used and understood price measure in Canada 
B) comes out monthly and without revisions, whereas other price measures are frequently revised 
C) A and B only. 
D) None of the above.

Question 7

Bank of Canada policy since 1989 suggests ________.

Accepted Answer

A) that it is finally using a monetary aggregate as its intermediate target 
B) that it is less concerned with fluctuations in the overnight interest rate 
C) that it is more concerned with exchange rates than with interest rates 
D) None of the above.

Question 8

During the 1975-1981 period, although the Bank of Canada was successful in keeping actual M1 growth within the target range, ________.

Accepted Answer

A) the inflation rate by the end of the 1970s was almost at the same level as when monetary gradualism was introduced in 1975 
B) the inflation rate remained high 
C) the demand for M1 became unstable 
D) All of the above.

Question 9

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 
E) none of the above

Question 10

Which of the following is an advantage to monetary targeting?

Accepted Answer

A) There is almost immediate accountability. 
B) It does not rely on a stable money-inflation relationship. 
C) It implies lack of transparency. 
D) It implies smaller output fluctuations.

Question 11

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 12

The United Kingdom uses ________ as its nominal anchor.

Accepted Answer

A) inflation target 
B) monetary aggregates 
C) interest rate target 
D) none of the above

Question 13

During the 1960s and early 1970s, the Bank of Canada's policy of using interest rates at the intermediate target was ________.

Accepted Answer

A) expansionary and resulted in double digit inflation 
B) contractionary and resulted in a decrease in the inflation rate 
C) neither expansionary nor contractionary 
D) None of the above

Question 14

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 15

In July 1993, Board of Governors Chairman Alan Greenspan testified in Congress that the Fed would no longer use what as a guide for conducting monetary policy?

Accepted Answer

A) The inflation rate 
B) Monetary aggregates 
C) Implicit nominal anchors 
D) The federal funds rate

Question 16

In the long-run, there is no trade-off between ________ and ________.

Accepted Answer

A) inflation; unemployment 
B) inflation; price stability 
C) unemployment; price stability 
D) unemployment; economic growth

Question 17

One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that ________.

Accepted Answer

A) they used a rigid target for the money growth rate 
B) they implemented policy so their inflation rate goal was met in the short run 
C) the money target was flexible to allow the Bundesbank to concentrate on other goals as needed 
D) they rarely communicated the intentions of policy to the public in order to keep the public from panicking

Question 18

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in "core CPI," because ________.

Accepted Answer

A) core CPI excludes volatile components, such as food, energy, and the effect of indirect taxes 
B) core inflation is useful in assessing whether trend inflation is on track for the medium term 
C) A and B only. 
D) None of the above.

Question 19

The nominal anchor ________.

Accepted Answer

A) acts like behavioural rule 
B) leads to inflation 
C) creates the time-inconsistency problem 
D) avoids the natural rate of unemployment

Question 20

The rate of inflation increases when ________.

Accepted Answer

A) the unemployment rate equals the NAIRU 
B) the unemployment rate exceeds the NAIRU 
C) the unemployment rate is less than the NAIRU 
D) the unemployment rate increases faster than the NAIRU increases

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