Question 1

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 
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 2

During the 1960s and early 1970s, the Bank of Canada used ________ as the intermediate target in the conduct of monetary policy.

Accepted Answer

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

Question 3

Compared to the United States, Japan's experience with monetary targeting performed ________.

Accepted Answer

A)  better with regard to the inflation rate and output fluctuations 
B)  worse with regard to the inflation rate and output fluctuations 
C)  better with regard to the inflation rate, but worse with regard to output fluctuations 
D)  worse with regard to the inflation rate, but better with regard to output fluctuations 
A)  better with regard to the inflation rate and output fluctuations 
B)  worse with regard to the inflation rate and output fluctuations 
C)  better with regard to the inflation rate, but worse with regard to output fluctuations 
D)  worse with regard to the inflation rate, but better with regard to output fluctuations

Question 4

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

Accepted Answer

A)  Nonborrowed reserves 
B)  The overnight funds rate 
C)  The monetary base 
D)  Each of the above 
A)  Nonborrowed reserves 
B)  The overnight funds rate 
C)  The monetary base 
D)  Each of the above

Question 5

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. 
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 6

What criteria apply when choosing a policy instrument?

Accepted Answer

Three criteria apply when choosing a pol

Question 7

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)  It imposes a rigid rule. 
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)  It imposes a rigid rule. 
D)  Inflation targeting reduces the effects of inflation shocks.

Question 8

Price stability is defined as ________.

Accepted Answer

A)  low inflation 
B)  low and stable inflation 
C)  stable inflation 
D)  core inflation 
A)  low inflation 
B)  low and stable inflation 
C)  stable inflation 
D)  core inflation

Question 9

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. 
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 10

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 increases accountability of the central bank. 
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 increases accountability of the central bank.

Question 11

The natural rate of output is also known as ________.

Accepted Answer

A)  potential output 
B)  NAIRU 
C)  structural output 
D)  GDP 
A)  potential output 
B)  NAIRU 
C)  structural output 
D)  GDP

Question 12

International policy coordination refers to ________.

Accepted Answer

A)  central banks in major nations acting without regard to the global consequences of their policies 
B)  central banks in major nations pursuing only domestic objectives 
C)  central banks adopting policies in pursuit of joint objectives 
D)  central banks all adopting identical policies 
A)  central banks in major nations acting without regard to the global consequences of their policies 
B)  central banks in major nations pursuing only domestic objectives 
C)  central banks adopting policies in pursuit of joint objectives 
D)  central banks all adopting identical policies

Question 13

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

Accepted Answer

A)  was concerned about inflation 
B)  was still very concerned with achieving 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 
A)  was concerned about inflation 
B)  was still very concerned with achieving 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

Question 14

A potential policy instrument for the Bank of Canada is ________.

Accepted Answer

A)  the monetary base 
B)  borrowed reserves 
C)  the overnight funds rate 
D)  the nonborrowed monetary base 
E)  All of the above 
A)  the monetary base 
B)  borrowed reserves 
C)  the overnight funds rate 
D)  the nonborrowed monetary base 
E)  All of the above

Question 15

Which of the following is not an operating instrument?

Accepted Answer

A)  Nonborrowed reserves 
B)  Monetary base 
C)  Overnight interest rate 
D)  Bank rate 
A)  Nonborrowed reserves 
B)  Monetary base 
C)  Overnight interest rate 
D)  Bank rate

Question 16

Which of the following is not an operating instrument?

Accepted Answer

A)  Nonborrowed reserves 
B)  Monetary base 
C)  Overnight funds interest rate 
D)  Bank rate 
A)  Nonborrowed reserves 
B)  Monetary base 
C)  Overnight funds interest rate 
D)  Bank rate

Question 17

The Bank of Canada formally abandoned monetary targeting ________.

Accepted Answer

A)  in November 1982 
B)  because of the uncertainty about the stability of M1 
C)  because of the uncertainty about monetary aggregates as reliable guides to monetary policy 
D)  All of the above. 
A)  in November 1982 
B)  because of the uncertainty about the stability of M1 
C)  because of the uncertainty about monetary aggregates as reliable guides to monetary policy 
D)  All of the above.

Question 18

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

Question 19

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. 
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 20

High unemployment ________.

Accepted Answer

A)  results in lower GDP 
B)  leads to increased human misery 
C)  cannot be a target of monetary policy 
D)  A and B only 
A)  results in lower GDP 
B)  leads to increased human misery 
C)  cannot be a target of monetary policy 
D)  A and B only

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

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

During the 1960s and early 1970s, the Bank of Canada used ________ as the intermediate target in the conduct of monetary policy.

Compared to the United States, Japan's experience with monetary targeting performed ________.

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

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

What criteria apply when choosing a policy instrument?

Which of the following is a disadvantage of inflation targeting?

Price stability is defined as ________.

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 ________.

Which of the following is an advantage to inflation targeting?

The natural rate of output is also known as ________.

International policy coordination refers to ________.

In the 1975-1981 period, the Bank of Canada selected a monetary aggregate as an intermediate target than an interest rate primarily because it ________.

A potential policy instrument for the Bank of Canada is ________.

Which of the following is not an operating instrument?

Which of the following is not an operating instrument?

The Bank of Canada formally abandoned monetary targeting ________.

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 ________.

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

High unemployment ________.

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

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