Question 1

The Reserve Bank of New Zealand ________.

Accepted Answer

A)  is one of the most independent central banks 
B)  as the sole objective of price stability 
C)  negotiates with the minister of finance to make a Policy Targets Agreement 
D)  all of the above 
A)  is one of the most independent central banks 
B)  as the sole objective of price stability 
C)  negotiates with the minister of finance to make a Policy Targets Agreement 
D)  all of the above

Question 2

Which of the following is a disadvantage of inflation targeting?

Accepted Answer

A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  There is a delayed signal on the achievement of the target. 
D)  Inflation targeting reduces the effects of inflation shocks. 
A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  There is a delayed signal on the achievement of the target. 
D)  Inflation targeting reduces the effects of inflation shocks.

Question 3

Which of the following is a potential operating instrument for the central bank?

Accepted Answer

A)  The monetary base 
B)  The M1 money supply 
C)  GDP 
D)  The Bank rate 
A)  The monetary base 
B)  The M1 money supply 
C)  GDP 
D)  The Bank rate

Question 4

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)  The performance has been quite good. 
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)  The performance has been quite good.

Question 5

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

Question 6

Which of the following is an advantage of inflation targeting?

Accepted Answer

A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  It is understood by the public and is transparent. 
D)  All of the above. 
A)  There is simplicity and clarity of the target. 
B)  Inflation targeting does not rely on a stable money-inflation relationship. 
C)  It is understood by the public and is transparent. 
D)  All of the above.

Question 7

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

Accepted Answer

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

Question 8

New Zealand adopted inflation targeting in ________.

Accepted Answer

A)  1990 
B)  1991 
C)  1992 
D)  1994 
A)  1990 
B)  1991 
C)  1992 
D)  1994

Question 9

During the 1960s and early 1970s, the Bank of Canada used ________ as the intermediate target(s), to keep the foreign exchange and domestic bonds markets functioning smoothly.

Accepted Answer

A)  the exchange rate and the interest rate 
B)  the interest rate 
C)  the monetary base 
D)  None of the above 
A)  the exchange rate and the interest rate 
B)  the interest rate 
C)  the monetary base 
D)  None of the above

Question 10

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

Accepted Answer

A)  increased; more 
B)  increased; less 
C)  decreased; more 
D)  decreased; less 
A)  increased; more 
B)  increased; less 
C)  decreased; more 
D)  decreased; less

Question 11

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Accepted Answer

A)  the interest rate; the exchange rate 
B)  the monetary base; the interest rate 
C)  the short-term interest rate; the long-term interest rate 
D)  the interest rate; the money supply 
A)  the interest rate; the exchange rate 
B)  the monetary base; the interest rate 
C)  the short-term interest rate; the long-term interest rate 
D)  the interest rate; the money supply

Question 12

Under monetary targeting, a central bank announces an annual growth rate target for ________.

Accepted Answer

A)  a monetary aggregate 
B)  a reserve aggregate 
C)  the monetary base 
D)  GDP 
A)  a monetary aggregate 
B)  a reserve aggregate 
C)  the monetary base 
D)  GDP

Question 13

Fluctuations in the demand for reserves cause the Bank of Canada to lose control over a monetary aggregate if the Bank of Canada targets ________.

Accepted Answer

A)  a monetary aggregate 
B)  the monetary base 
C)  an interest rate 
D)  nominal GDP 
A)  a monetary aggregate 
B)  the monetary base 
C)  an interest rate 
D)  nominal GDP

Question 14

Since 1989, the Bank of Canada used ________ as the operating target and ________ as the ultimate goal of monetary policy.

Accepted Answer

A)  the overnight interest rate; the exchange rate 
B)  the overnight interest rate; the inflation rate 
C)  the monetary base; the inflation rate 
D)  None of the above. 
A)  the overnight interest rate; the exchange rate 
B)  the overnight interest rate; the inflation rate 
C)  the monetary base; the inflation rate 
D)  None of the above.

Question 15

The decision by inflation targeters to choose inflation targets ________ zero reflects the concern of monetary policymakers that particularly ________ inflation can have substantial negative effects on economic growth.

Accepted Answer

A)  below; high 
B)  below; low 
C)  above; high 
D)  above; low 
A)  below; high 
B)  below; low 
C)  above; high 
D)  above; low

Question 16

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 
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 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)  There is transparency. 
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)  There is transparency.

Question 18

If the relationship between the monetary aggregate and the goal variable is weak, then ________.

Accepted Answer

A)  monetary aggregate targeting is superior to exchange-rate targeting 
B)  monetary aggregate targeting is superior to inflation targeting 
C)  inflation targeting is superior to exchange-rate targeting 
D)  monetary aggregate targeting will not work 
A)  monetary aggregate targeting is superior to exchange-rate targeting 
B)  monetary aggregate targeting is superior to inflation targeting 
C)  inflation targeting is superior to exchange-rate targeting 
D)  monetary aggregate targeting will not work

Question 19

The importance of a nominal anchor is to ________.

Accepted Answer

A)  limit the time-inconsistency problem 
B)  reduce inflation 
C)  promote low inflation 
D)  allow discretionary day-to-day monetary policy 
A)  limit the time-inconsistency problem 
B)  reduce inflation 
C)  promote low inflation 
D)  allow discretionary day-to-day monetary policy

Question 20

Hierarchical mandates ________.

Accepted Answer

A)  puts the goal of price stability first and then allows for other goals 
B)  requires all goals to be met simultaneously 
C)  is only used by the Bank of Canada 
D)  is only used by the Federal Reserve 
A)  puts the goal of price stability first and then allows for other goals 
B)  requires all goals to be met simultaneously 
C)  is only used by the Bank of Canada 
D)  is only used by the Federal Reserve

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

The Reserve Bank of New Zealand ________.

Which of the following is a disadvantage of inflation targeting?

Which of the following is a potential operating instrument for the central bank?

Which of the following is an advantage to inflation targeting?

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

Which of the following is an advantage of inflation targeting?

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

New Zealand adopted inflation targeting in ________.

During the 1960s and early 1970s, the Bank of Canada used ________ as the intermediate target(s), to keep the foreign exchange and domestic bonds markets functioning smoothly.

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

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Under monetary targeting, a central bank announces an annual growth rate target for ________.

Fluctuations in the demand for reserves cause the Bank of Canada to lose control over a monetary aggregate if the Bank of Canada targets ________.

Since 1989, the Bank of Canada used ________ as the operating target and ________ as the ultimate goal of monetary policy.

The decision by inflation targeters to choose inflation targets ________ zero reflects the concern of monetary policymakers that particularly ________ inflation can have substantial negative effects on economic growth.

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

Which of the following is an advantage to inflation targeting?

If the relationship between the monetary aggregate and the goal variable is weak, then ________.

The importance of a nominal anchor is to ________.

Hierarchical mandates ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

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

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

During the 1982-1988 period, the Bank of Canada used as the operating target and as the intermediate target.

Since 1989, the Bank of Canada used as the operating target and as the ultimate goal of monetary policy.

The decision by inflation targeters to choose inflation targets zero reflects the concern of monetary policymakers that particularly inflation can have substantial negative effects on economic growth.