Question 1

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.

Accepted Answer

A)   demand: tighten
B)   demand; loosen
C)   supply; tighten
D)   supply; loosenE) All of the above
F) A) and D)

Question 2

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability.Such a variable is called a nominal

Accepted Answer

A)   anchor.
B)   benchmark.
C)   tether.
D)   guideline.E) A) and B)
F) A) and C)

Question 3

Either a dual or hierarchial mandate is acceptable as long as ________ is the primary goal in the ________.

Accepted Answer

A)   price stability; short run
B)   price stability; long run
C)   reducing business-cycle fluctuations; short run
D)   reducing business-cycle fluctuations; long runE) A) and D)
F) A) and C)

Question 4

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

Accepted Answer

A)   fluctuations of nonborrowed reserves will be small.
B)   fluctuations of nonborrowed reserves will be large.
C)   the Fed will probably quickly abandon this policy, as it did in the 1960s.
D)   the Fed will probably quickly abandon this policy, as it did in the 1950s.E) All of the above
F) A) and D) B

Question 5

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 objectivesE) None of the above
F) C) and D)

Question 6

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

Accepted Answer

A)   money market conditions; countercyclical
B)   money market conditions; procyclical
C)   monetary aggregates; countercyclical
D)   monetary aggregates; procyclicalE) A) and C)
F) All of the above

Question 7

Explain the Taylor rule,including the formula for setting the federal funds rate target,and the components of the formula.If the Fed were to use this rule,how many goals would it use to set monetary policy?

Accepted Answer

The Taylor rule specifies that the targe...

Question 8

Using Taylor's rule,when the equilibrium real federal funds rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal federal funds rate target should be

Accepted Answer

A)   5 percent.
B)   5.5 percent.
C)   6 percent.
D)   6.5 percent.E) A) and D)
F) C) and D)

Question 9

A nominal anchor promotes price stability by

Accepted Answer

A)   outlawing inflation.
B)   stabilizing interest rates.
C)   keeping inflation expectations low.
D)   keeping economic growth low.E) B) and C)
F) None of the above C

Question 10

Unemployment resulting from a mismatch of workers' skills and job requirements is called

Accepted Answer

A)   frictional unemployment.
B)   structural unemployment.
C)   seasonal unemployment.
D)   cyclical unemployment.E) A) and D)
F) A) and C)

Question 11

In the 1970s,the Fed selected an interest rate as an operating target rather 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 achieving interest rate stability.
C)   was committed to targeting free reserves.
D)   was committed to the real bills doctrine.E) B) and C)
F) A) and D)

Question 12

The most common definition that monetary policymakers use for price stability is

Accepted Answer

A)   low and stable deflation.
B)   an inflation rate of zero percent.
C)   high and stable inflation.
D)   low and stable inflation.E) A) and B)
F) A) and C) D

Question 13

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy

Accepted Answer

A)   using a nominal anchor.
B)   using a strict and inflexible rule.
C)   on a discretionary, day-by-day basis.
D)   using a flexible, discretionary rule.E) C) and D)
F) B) and C)

Question 14

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

Accepted Answer

A)   more; forward
B)   more; backward
C)   less; forward
D)   less; backwardE) B) and C)
F) None of the above

Question 15

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Accepted Answer

A)   countercyclical monetary policy.
B)   too slow growth in M1 throughout the decade.
C)   procyclical monetary policy.
D)   too rapid growth in M1 throughout the decade.E) A) and C)
F) A) and B)

Question 16

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor.Economists call this level of unemployment the

Accepted Answer

A)   frictional level of unemployment.
B)   structural level of unemployment.
C)   natural rate level of unemployment.
D)   Keynesian rate level of unemployment.E) A) and D)
F) A) and C)

Question 17

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

Accepted Answer

A)   The effect of increasing interest rates on asset prices is uncertain.
B)   A bubble may only exist in some asset-prices and monetary policy will affect all asset prices.
C)   Using monetary policy to prick an asset-price bubble may have adverse effect on the aggregate economy.
D)   Even though credit-drive bubbles are easier to identify, they are still relatively hard to identify.E) C) and D)
F) None of the above

Question 18

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

Accepted Answer

A)   rise; rise
B)   rise; fall
C)   fall; rise
D)   fall; fallE) B) and C)
F) A) and D)

Question 19

Which set of goals can,at times,conflict in the short run?

Accepted Answer

A)   High employment and economic growth.
B)   Interest rate stability and financial market stability.
C)   High employment and price level stability.
D)   Exchange rate stability and financial market stability.E) A) and B)
F) B) and C)

Question 20

The type of monetary policy regime that the Federal Reserve has been following in recent years can best be described as

Accepted Answer

A)   monetary targeting.
B)   inflation targeting.
C)   policy with an implicit nominal anchor.
D)   exchange-rate targeting.E) A) and B)
F) A) and C)

Exam 16: The Conduct of Monetary Policy: Strategy and Tactics

Correct Answer
verified

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability.Such a variable is called a nominal

Correct Answer
verified

Either a dual or hierarchial mandate is acceptable as long as is the primary goal in the .

Correct Answer
verified

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

Correct Answer
verified
B

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

Correct Answer
verified

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

Correct Answer
verified

Explain the Taylor rule,including the formula for setting the federal funds rate target,and the components of the formula.If the Fed were to use this rule,how many goals would it use to set monetary policy?

Correct Answer
verified
The Taylor rule specifies that the targe...
View Answer

Using Taylor's rule,when the equilibrium real federal funds rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal federal funds rate target should be

Correct Answer
verified

A nominal anchor promotes price stability by

Correct Answer
verified
C

Unemployment resulting from a mismatch of workers' skills and job requirements is called

Correct Answer
verified

In the 1970s,the Fed selected an interest rate as an operating target rather than a reserve aggregate primarily because it

Correct Answer
verified

The most common definition that monetary policymakers use for price stability is

Correct Answer
verified
D

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy

Correct Answer
verified

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

Correct Answer
verified

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Correct Answer
verified

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor.Economists call this level of unemployment the

Correct Answer
verified

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

Correct Answer
verified

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

Correct Answer
verified

Which set of goals can,at times,conflict in the short run?

Correct Answer
verified

The type of monetary policy regime that the Federal Reserve has been following in recent years can best be described as

Correct Answer
verified

Exam 16: The Conduct of Monetary Policy: Strategy and Tactics

Correct AnswerverifiedShow Answer

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability.Such a variable is called a nominal

Correct AnswerverifiedShow Answer

Either a dual or hierarchial mandate is acceptable as long as ________ is the primary goal in the ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain the Taylor rule,including the formula for setting the federal funds rate target,and the components of the formula.If the Fed were to use this rule,how many goals would it use to set monetary policy?

Correct AnswerverifiedThe Taylor rule specifies that the targe...View AnswerShow Answer

Using Taylor's rule,when the equilibrium real federal funds rate is 3 percent,the positive output gap is 2 percent,the target inflation rate is 1 percent,and the actual inflation rate is 2 percent,the nominal federal funds rate target should be

Correct AnswerverifiedShow Answer

A nominal anchor promotes price stability by

Correct AnswerverifiedC

Unemployment resulting from a mismatch of workers' skills and job requirements is called

Correct AnswerverifiedShow Answer

In the 1970s,the Fed selected an interest rate as an operating target rather than a reserve aggregate primarily because it

Correct AnswerverifiedShow Answer

The most common definition that monetary policymakers use for price stability is

Correct AnswerverifiedD

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fed's use of the federal funds rate as an operating target in the 1970s resulted in

Correct AnswerverifiedShow Answer

The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor.Economists call this level of unemployment the

Correct AnswerverifiedShow Answer

Which of the following is NOT an argument against using monetary policy to prick asset-price bubbles?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which set of goals can,at times,conflict in the short run?

Correct AnswerverifiedShow Answer

The type of monetary policy regime that the Federal Reserve has been following in recent years can best be described as

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Either a dual or hierarchial mandate is acceptable as long as is the primary goal in the .

Correct Answer
verified

Correct Answer
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B

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

Correct Answer
verified

Correct Answer
verified
The Taylor rule specifies that the targe...
View Answer

Correct Answer
verified

Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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D

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified