Exam 19: The Conduct of Monetary Policy: Strategy and Tactics

The Federal Reserve has been ________ preemptive because of the changing view that monetary policy has to be ________ looking.

During World War II, whenever interest rates would ________ and the price of bonds would begin to ________, the Fed would make open market purchases.

The Fed accidentally discovered open market operations in the early

Inflation results in

According to the Taylor Principle, when the inflation rate rises, the nominal interest rate should be ________ by ________ than the inflation rate increase.

If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent,

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

The monetary policy strategy that provides the least accountability is

High inflation can spiral out of control when

Even if the Fed could completely control the money supply, monetary policy would have critics because

The time-inconsistency problem with monetary policy tells us that, if policymakers use discretionary policy, there is a higher probability that the ________ will be higher, compared to policy makers following a behavior rule.

During the 1950s, Fed monetary policy targeted

When compared to the Fed's ________ anchor approach, ________ targeting can make the institutional framework for the conduct of monetary policy more consistent with democratic principles.

The Fed can engage in preemptive strikes against a rise in inflation by ________ the federal funds interest rate; it can act preemptively against negative demand shocks by ________ the federal funds interest rate.

The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to

Estimates suggest that, in the United States economy, it takes just over ________ for monetary policy to affect output and just over ________ for monetary policy to affect the inflation rate.

Inflation targets can increase the central bank's flexibility in responding to declines in aggregate spending. Declines in aggregate ________ that cause the inflation rate to fall below the floor of the target range will automatically stimulate the central bank to ________ monetary policy without fearing that this action will trigger a rise in inflation expectations.

In practice, the Fed's policy of targeting ________ in the 1960s proved to be ________, destabilizing the economy.

The theory that monetary policy conducted on a discretionary, day-by-day basis leads to poor long-run outcomes is referred to as the

A central bank has ________ chance to identify a credit-driven bubble compared to an irrational exuberance bubble.