The most common definition that financial policymakers usage for price security is

A) low and also stable deflation. B) one inflation price of zero percent. C) high and stable inflation. D) low and stable inflation.

Inflation results in

A) ease of planning for the future. B) lull of comparing prices over time. C) reduced nominal interest rates. D) difficulty interpreting relative price movements.

Economists believe that countries recently suffering hyperinflation have experienced

A) lessened growth. B) raised growth. C) decreased prices. D) reduced interest rates.

A in the name of variable, such as the inflation price or the money supply, which ties down the price level to accomplish price stability is dubbed ________ anchor.

You are watching: The most common definition that monetary policymakers use for price stability is

A) a in the name B) a genuine C) an operating D) an intermediate

A central feature of monetary policy techniques in all countries is the use of a nominal variable that financial policymakers usage as an intermediate target to accomplish an ultimate score such as price stability. Such a variable is referred to as a nominal

A) anchor. B) benchmark. C) tether. D) guideline.

A in the name of anchor promotes price stability by

A) outlawing inflation. B) stabilizing interest rates. C) keeping inflation expectations low. D) keeping financial growth low.

Monetary plan is considered time-inconsistent because

A) the the lag times associated with the implementation of financial policy and also its result on the economy. B) policymakers space tempted to go after discretionary plan that is more contractionary in the quick run. C) policymakers space tempted to pursue discretionary policy that is much more expansionary in the quick run. D) the the lag times connected with the recognition of a potential financial problem and also the implementation of financial policy.

The time-inconsistency trouble with monetary policy tells united state that, if policymakers use discretionary policy, over there is a greater probability the the ________ will be higher, compared to policy makers complying with a actions rule.

A) inflation price B) unemployment rate C) interest price D) foreign exchange price

The concept that monetary policy performed on a discretionary, day-by-day basis leader to poor long-run outcomes is referred to as the

A) adverse choice problem. B) ethical hazard problem. C) time-inconsistency problem. D) nominal-anchor problem.

The ________ problem of discretionary plan arises because economic behavior is influenced by what firms and people intend the financial authorities to perform in the future.

A) moral hazard B) time-inconsistency C) nominal-anchor D) rational-expectation

If the central bank pursues a monetary policy that is much more expansionary than what firms and people expect, then the main bank have to be make the efforts to

A) rise output in the short run. B) constrain output in the quick run. C) dominate prices. D) an increase prices in the brief run.

The time-inconsistency difficulty in financial policy can occur when the main bank conducts policy

A) using a in the name anchor. B) making use of a strict and also inflexible rule. C) on a discretionary, day-by-day basis. D) making use of a flexible, discretionary rule.

Explain the time-inconsistency problem. What is the likely outcome of discretionary policy? What space the solutions to the time-inconsistency problem?


Answer: With policy discretion, policymakers have actually an impetus to attempt to boost output by follow expansionary policies when expectations are set. The difficulty is that this policy results no in greater output, but in greater actual and also expected inflation. The equipment is to take on a ascendancy to constrain discretion. In the name of anchors can carry out the essential constraint on discretionary behavior.


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

A) the Fed is request to achieve many goals, several of which room incompatible v others. B) the Fed\"s goals do not incorporate high employment, making job unions a doubter of the Fed. C) the Fed\"s major goal is exchange rate stability, resulting in it to ignore residential economic conditions. D) that is forced to store Treasury defense prices high.

High unemployment is undesirable because it

A) outcomes in a loss of output. B) always increases inflation. C) always increases interest rates. D) to reduce idle resources.

When employees voluntarily leave job-related while lock look for better jobs, the resulting unemployment is called

A) structural unemployment. B) friction unemployment. C) cyclical unemployment. D) underemployment.

Unemployment result from a mismatch the workers\" skills and job requirements is called

A) friction unemployment. B) structure unemployment. C) seasonal unemployment. D) cyclical unemployment.

The goal for high employment must be a level of unemployment at i beg your pardon the demand for labor equates to the it is provided of labor. Economists call this level of unemployment the

A) friction level the unemployment. B) structural level that unemployment. C) natural rate level that unemployment. D) Keynesian rate level that unemployment.

Supply-side economic policies look for to

A) raise interest rates through contractionary monetary policy. B) boost federal federal government expenditures. C) increase intake expenditures by raising taxes. D) increase saving and also investment using taxes incentives.

The commonwealth Reserve device was created to

A) make it much easier to finance budget plan deficits. B) encourage financial sector stability. C) reduced the unemployment rate. D) encourage rapid financial growth.

Having interest price stability

A) allows for much less uncertainty about future planning. B) leader to demands to curtail the Fed\"s power. C) guarantees complete employment. D) leader to troubles in financial markets.

Foreign exchange rate stability is important because a decline in the worth of the domestic currency will ________ the inflation rate, and rise in the worth of the domestic money makes domestic industries ________ competitive with completing foreign industries.

A) increase; an ext B) increase; much less C) decrease; much more D) decrease; much less

Which collection of objectives can, at times, dispute in the brief run?

A) high employment and economic growth B) interest price stability and financial sector stability C) high employment and also price level stability D) exchange rate stability and financial market stability

The primary goal that the European main Bank is

A) price stability. B) exchange price stability. C) interest price stability. D) high employment.

The mandate for the financial policy objectives that has been offered to the European main Bank is an example of a ________ mandate.

A) main B) dual C) secondary D) ordered

The mandate because that the monetary policy goals that has actually been provided to the commonwealth Reserve device is an instance of a ________ mandate.

A) primary B) double C) secondary D) hierarchical

Either a twin or hierarchial mandate is acceptable as long as ________ is the main goal in the ________.

A) price stability; quick run B) price stability; long run C) reduce business-cycle fluctuations; quick run D) reduce business-cycle fluctuations; long run

The type of financial policy that is provided in Canada, new Zealand, and also the united kingdom is

A) financial targeting. B) inflation targeting. C) targeting with an implicitly nominal anchor. D) interest-rate targeting.

Which the the adhering to is no an element of inflation targeting?

A) a public announcement of medium-term numerical targets for inflation B) one institutional commitment to price security as the primary long-run score C) one information-inclusive technique in i beg your pardon only monetary aggregates are provided in making decisions around monetary plan D) increased accountability that the main bank for attaining that is inflation objectives

The first country to embrace inflation targeting was

A) the united Kingdom. B) Canada. C) brand-new Zealand. D) Australia.

In both brand-new Zealand and Canada, what has happened to the joblessness rate since the countries adopted inflation targeting?

A) The joblessness rate raised sharply. B) The unemployment rate remained constant. C) The unemployment rate has declined substantially after a spicy increase. D) The joblessness rate decreased sharply instantly after the inflation targets were adopted.

Which of the following is no an benefit of inflation targeting?

A) reduction of the time-inconsistency problem B) increased monetary plan transparency C) there is an immediate signal top top the achievement of the target. D) consistency with democratic principles

Which of the following is no a disadvantage come inflation targeting?

A) there is a delay signal about achievement the the target. B) Inflation targets could impose a rigid dominion on policymakers. C) there is potential for larger output fluctuations. D) there is a absence of transparency.

The decision through inflation targeters to choose inflation targets ________ zero shows the worry of monetary policymakers that specifically ________ inflation deserve to have substantial an unfavorable effects ~ above real economic activity.

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

Inflation targets have the right to increase the main bank\"s versatility in responding to declines in accumulation spending. Declines in aggregate ________ that cause the inflation rate to fall below the floor of the target range will instantly stimulate the main bank come ________ monetary policy without fearing that this activity will create a increase in inflation expectations.

A) demand: tighten B) demand; loosen C) supply; tighten D) supply; loosen

Explain what inflation targeting is. What room the benefits and defect of this kind of financial policy strategy?


Answer: over there are five main elements to inflation targeting: 1. A public announcement of a medium-term target for the inflation rate; 2. A commitment to price stability as the primary long-term goal of policy; 3. Many variables are provided in make decisions about policy moves; 4. Raised transparency around policy strategy with the public; 5. The central bank has actually increased accountability because that attaining plan goals.

The benefits of inflation targeting include: 1. The simplicity and clarity of a numerical target because that the inflation rate; 2. There is boosted accountability that the central bank; 3. To reduce the effects of inflationary shocks.

The disadvantages of inflation targeting include: 1. Over there is a delay signal about the success of the target; 2. It can lead come a rigid preeminence where the only focus is the inflation rate (has not happened in practice); 3. If sole focus is the inflation rate, larger output fluctuations can occur (has not occurred in practice).


The type of monetary policy regimen that the commonwealth Reserve has followed From the 1980s up until the moment Ben Bernanke ended up being chair the the federal Reserve in 2006 can finest be explained as

A) monetary targeting. B) inflation targeting. C) policy with an implicitly nominal anchor. D) exchange-rate targeting.

Estimates from large macroeconometric models the the U.S. Economy argues that the takes over ________ for monetary policy to influence output and also over ________ for monetary policy to influence the inflation rate.

A) 1 year; 2 years B) 2 years; 1 year C) 1 year; 6 month D) 6 months; 1 year

Which that the adhering to is not a disadvantage of of the Fed\"s \"just carry out it\" strategy to financial policy?

A) over there is low transparency that policy. B) there is low accountability for main bankers. C) This type of policy make the Fed an ext susceptible come the time-inconsistency problem. D) It counts on a steady money-inflation relationship.

Suppose that takes around two years for monetary policy to have actually a far-reaching impact on inflation. If inflation is currently low however policymakers believe inflation will climb over the next two years v an the same stance of financial policy, when should they tighten financial policy to stop the inflationary surge?

A) currently B) wait until overt indications of inflation appear C) following year D) two years later

Under Alan Greenspan and Ben Bernanke, the federal Reserve prospered in

pursuing a ________ policy.

A) preemptive B) inflation targeting C) exchange price targeting D) financial targeting

After Ben Bernanke ended up being chair of the Fed in 2006, he

A) enhanced Fed transparency. B) exit inflation targeting. C) used \"just perform it\" policy. D) enhanced the opacity the the policymaking.

The FOMC ultimately moved come ________ top top January 25, 2012, once it approve its \"Statement top top Long-Run

Goals and also Monetary policy Strategy.\"

A) inflation targeting B) zero inflation policy C) \"just carry out it\" plan D) financial targeting

In the FOMC\"s \"Statement ~ above Long-Run Goals and Monetary policy Strategy,\"the FOMC agreed come a single numerical value of the inflation objective, 2% on the ________.

A) pce deflator B) GDP deflator C) CPI D) PPI

The FOMC \"Statement ~ above Long-Run Goals and Monetary policy Strategy\"made it clear the the commonwealth Reserve would be pursuing ________, continuous with its twin mandate.

A) a flexible type of inflation targeting B) a strict kind of inflation targeting C) a zero inflation targeting D) an implicitly inflation targeting

Lessons the economists and policy makers have actually learned indigenous the recent worldwide financial dilemm include

A) breakthroughs in the gaue won sector have a much greater affect on economic task than was earlier realized. B) The zero lower bound on interest rates can be a serious problem. C) The price of clean up ~ a financial dilemm is really high. D) Price and output stability do not for sure financial stability. E) all of the above.

The troubles of elevating the level of the inflation target include

A) if the zero-lower-bound difficulty is rare, then the benefits of a greater inflation target are not very large. B) the expenses of higher inflation in regards to the distortions the produces in the economic situation are high. C) that is more difficult to stabilize the inflation price at a greater targeting level. D) every one of the above.

The \"Greenspan doctrine\"—central banks should not shot to prick bubbles—was based on which of the adhering to arguments?

A) Asset-price balloon are nearly impossible come identify. B) monetary actions would be most likely to influence asset prices in general, fairly than the certain assets that room experiencing a bubble. C) increasing interest prices has frequently been discovered to reason a bubble to burst an ext severely. D) financial policy actions come prick bubbles can have harmful impacts on the accumulation economy. E) all of the above.

When asset prices increase over their basic values the is dubbed an

A) asset-price bubble. B) irrational bubble. C) asset-price spike. D) irrational spike.

Suppose interest prices are kept very low because that a lengthy time such the there is a spike in the lot of lending. Everything else hosted constant, this could cause ________ bubble.

A) an irrational exuberance B) a credit-driven C) a share D) a debt-driven

A credit-driven balloon arises as soon as ________ in lending reasons ________ in asset prices which can reason ________ in lending.

A) a decrease; a decrease; an increase B) a decrease; an increase; rise C) one increase; an increase; a additional increase D) a decrease; a decrease; a further decrease

________ bubble is driven completely by unrealistic positive expectations.

A) an irrational exuberance B) A credit-driven C) A stock D) A debt-driven

Everything else organized constant, a credit-drive bubble is generally considered to have the potential to cause ________ damage to one economy contrasted to an irrational exuberance bubble.

A) less B) about the same amount of C) an ext D) either more, less, or the same amount the

A main bank has ________ possibility to recognize a credit-driven bubble compared to one irrational exuberance bubble.

A) a higher B) much less of a C) around the exact same level of a D) a greater, much less or about the exact same level that a

Which that the following is no an argument versus using financial policy come prick asset-price bubbles?

A) The result of raising interest rates on asset prices is uncertain. B) A bubble may only exist in some asset-prices and monetary policy will influence all legacy prices. C) Using financial policy to prick an asset-price bubble may have actually adverse impact on the aggregate economy. D) also though credit-drive balloon are much easier to identify, they room still fairly hard to identify.

Which of the complying with is no an operating instrument?

A) nonborrowed make reservation B) monetary base C) commonwealth funds interest rate D) discount rate

Which of the complying with is a potential operation instrument because that the main bank?

A) the financial base B) the M1 money it is provided C) in the name of GDP D) the discount rate

Due to the lack of timely data because that the price level and also economic growth, the Fed\"s strategy

A) targets the exchange rate, due to the fact that the Fed can regulate this variable. B) targets the price of gold, since it is carefully related to economic activity. C) uses an intermediary target, such as an attention rate. D) stabilizes the consumer price index, since the Fed can manage the CPI.

If the main bank targets a financial aggregate, it is likely to lose control over the interest price because

A) of fluctuations in the need for reserves. B) the fluctuations in the consumption function. C) bond values will have tendency to stay stable. D) of fluctuations in the business cycle.

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

A) fluctuations of nonborrowed reserves will certainly be small. B) fluctuations the nonborrowed reserves will certainly be large. C) the Fed will certainly probably easily abandon this policy, together it go in the 1960s. D) the Fed will certainly probably conveniently abandon this policy, together it did in the 1950s.

Fluctuations in the need for reserves cause the Fed come lose control over a monetary accumulation if the Fed targets

A) a financial aggregate. B) the monetary base. C) an attention rate. D) nominal GDP.

Real interest rates are difficult to measure up because

A) data on them room not available in a stylish manner. B) real interest prices depend ~ above the hard-to-determine supposed inflation rate. C) they fluctuate too frequently to be accurate. D) they can not be controlled by the Fed.

Which that the following criteria need NOT be satisfied for picking a policy instrument?

A) The variable need to be measurable. B) The variable should be controllable. C) The variable have to be predictable. D) The variable need to be transportable.

Which of the complying with is not a necessity in selecting a plan instrument?

A) measurability B) controllability C) flexibility D) predictability

When it comes to choosing an policy instrument, both the ________ rate and ________ aggregates space measured accurately and are available daily with practically no delay.

A) three-month T-bill; financial B) three-month T-bill; to make reservation C) federal funds; financial D) federal funds; reserve
\"*\"

Explain and also demonstrate graphically just how targeting nonborrowed reserves can an outcome in commonwealth funds rate instability.


Answer: See figure - chapter 16 Number 66

When nonborrowed reserves are hosted constant, rises in the demand for reserves an outcome in the federal funds price increasing and decreases in the need for nonborrowed reserves an outcome in the commonwealth funds price declining. Since fluctuations in demand do not cause monetary policy actions, the result is the federal funds rate will shake (assuming the equilibrium commonwealth funds rate is below the discount rate).


\"*\"

Explain and also demonstrate graphically exactly how targeting the federal funds price can result in fluctuations in nonborrowed reserves.


Answer: See figure - chapter 16 Number 67

With a commonwealth funds price target, fluctuations in demand for to make reservation require comparable changes in the nonborrowed reserves to save the federal funds rate constant.


According to the Taylor rule, the Fed should raise the commonwealth funds interest rate when inflation ________ the Fed\"s inflation target or when real GDP ________ the Fed\"s calculation target.

A) rises above; drops below B) autumn below; drops below C) rises above; rises above D) autumn below; rises above

Using Taylor\"s rule, when the equilibrium genuine federal funds rate is 3 percent, the hopeful output void is 2 percent, the target inflation rate is 1 percent, and the really inflation price is 2 percent, the nominal commonwealth funds rate target must be

A) 5 percent. B) 5.5 percent. C) 6 percent. D) 6.5 percent.

Using Taylor\"s rule, when the equilibrium real federal funds price is 2 percent, over there is no calculation gap, the actual inflation rate is zero, and also the target inflation price is 2 percent, the nominal federal funds rate should be

A) 0 percent. B) 1 percent. C) 2 percent. D) 3 percent.

According to the Taylor Principle, as soon as the inflation rate rises, the nominal interest rate should be ________ through ________ 보다 the inflation price increase.

A) increased; an ext B) increased; much less C) decreased; more D) decreased; much less

If the Taylor principle is no followed and nominal interest prices are enhanced by much less than the increase in the inflation rate, then genuine interest rates will ________ and monetary plan will be also ________.

A) rise; chop B) rise; loosened C) fall; chop D) fall; loosened

The rate of inflation often tends to remain consistent when

A) the unemployment rate is over the NAIRU. B) the unemployment rate equals the NAIRU. C) the unemployment price is listed below the NAIRU. D) the unemployment rate increases quicker than the NAIRU increases.

The rate of inflation rises when

A) the joblessness rate equates to the NAIRU. B) the unemployment price exceeds the NAIRU. C) the unemployment price is much less than the NAIRU. D) the unemployment price increases quicker than the NAIRU increases.

Explain the Taylor rule, consisting of the formula for setup the federal funds rate target, and also the contents of the formula. If the Fed were to use this rule, how numerous goals would certainly it usage to collection monetary policy?


Answer: The Taylor ascendancy specifies the the target federal money rates need to be set to same the equilibrium real federal funds rate, plus the price of inflation (for the Fisher effect), to add one-half time the calculation gap, to add one-half times the inflation gap. The formula is

Federal funds rate target = equilibrium actual federal funds price + inflation price + (output gap) + (inflation gap)

The output gap is the percentage deviation of genuine GDP indigenous potential full-employment genuine GDP. The inflation space is the difference between actual inflation and also the central bank\"s target rate of inflation. The equilibrium real federal funds price is the real rate regular with full employment in the long run. The inflation rate is the actual price of inflation. The Taylor dominion sets the commonwealth funds rate recognizing the objectives of low inflation and also full employed (or equilibrium long-run financial growth).


In follow a strategy of financial targeting, the main bank announces that it will attain a specific value (the target) of the yearly growth rate of a ________.

A) a monetary accumulation B) a reserve accumulation C) the financial base D) GDP

During the year 1979 to 1982, the commonwealth Reserve\"s announced policy was financial targeting. Throughout this time duration the federal Reserve

A) hit every one of their monetary targets. B) did not hit any kind of of their monetary targets due to the fact that it is thought that controlling the money it is provided was not the intent of the federal Reserve. C) did not hit any of their monetary targets since they to be unrealistic. D) fight about half of their financial targets.

Compared come the unified States, Japan\"s endure with monetary targeting during the 1978––1987 duration performed

A) much better with regard come the inflation rate and output fluctuations. B) worse through regard come the inflation rate and also output fluctuations. C) better with regard come the inflation rate, however worse v regard to output fluctuations. D) worse v regard come the inflation rate, but better with regard to calculation fluctuations.

One the the determinants that contributed to the success German policymakers had actually using a financial targeting type policy beginning in the mid-1970s and continuing with the following two decades was that

A) they used a strictly target for the money development rate. B) they enforced policy so their inflation rate goal was met in the quick run. C) the money target was flexible to permit the Bundesbank to concentrate on other goals as needed. D) castle rarely connected the intentions of policy to the general public in order to save the public indigenous panicking.

The European main Bank (ECB) pursues a hybrid financial policy strategy that has elements in usual with the -targeting strategy previously provided by the Bundesbank but additionally includes some elements of targeting.

See more: Which Of The Following Describes The Most Typical Order Of Entry Into Foreign Markets?

A) monetary; inflation B) inflation; financial C) monetary; exchange rate D) monetary; in the name GDP

Which that the following is an benefit to money targeting?

A) there is an instant signal ~ above the achievement of the target. B) the does not count on a steady money-inflation relationship. C) it implies absence of transparency. D) It suggests smaller output fluctuations.

Which the the complying with is a disadvantage to financial targeting?

A) It depends on a steady money-inflation relationship. B) over there is a delay signal about the achievement of a target. C) it implies bigger output fluctuations. D) It indicates a absence of transparency.

If the relationship between the monetary accumulation and the score variable is weak, then

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

The financial policy strategy that relies on a secure money-income partnership is

A) exchange-rate targeting. B) monetary targeting. C) inflation targeting. D) the implicit nominal anchor.

In its more quickly years, the federal Reserve\"s guiding principle because that the conduct of monetary policy was well-known as the

A) genuine bills doctrine. B) for free liquidity doctrine. C) totally free reserves doctrine. D) amount theory the money.

The guiding principle because that the command of financial policy that organized that as lengthy as loans to be being produced \"productive\" purposes, then giving reserves to the banking mechanism to do these loans would not be inflationary ended up being known as the

A) cost-free reserves doctrine. B) Benjamin strong doctrine. C) reliable liquidity doctrine. D) actual bills doctrine.

The genuine bills doctrine to be the guiding principle for the conduct of monetary policy throughout the

A) 1910s. B) 1940s. C) 1950s. D) 1960s.

The Fed accidentally uncovered open market operations in the early

A) 1920s. B) 1910s. C) 1900s. D) 1890s.

The Fed accidentally discovered open sector operations when

A) it involved the rescue that failing banks in the early 1930s, and found that its purchase of bank loans injected reserves right into the bank system. B) it purchased securities because that income adhering to the 1920-1921 recession. C) the attempted to slow inflation in 1919 by selling securities and also found that its sales drained reserves native the banking system. D) that reinterpreted a key provision that the commonwealth Reserve Act.

The Fed\"s failure of the early on 1930s were compounded by its decision to

A) advanced reserve requirements in 1936-1937. B) reduced reserve requirements in 1936-1937. C) advanced the monetary base in 1936-1937. D) lower the financial base in 1936-1937.

During people War II, whenever interest rates would ________ and also the price of bond would start to ________, the Fed would make open market purchases.

A) rise; increase B) rise; autumn C) fall; rise D) fall; fall

During civilization War II, anytime interest prices would rise and also the price of bonds would begin to fall, the Fed would

A) lower reserve requirements. B) progressive reserve requirements. C) do open market purchases of government securities. D) make open sector sales of federal government securities.

During civilization War II, the Fed in effect relinquished its manage of monetary policy v its policy of

A) continually lowering make reservation requirements. B) continually elevating reserve requirements. C) pegging attention rates. D) targeting complimentary reserves.

The Fed was committed to keeping interest prices low to help Treasury jae won of budget deficits

A) just during civilization War I. B) throughout the great Depression. C) during people War I and World war II. D) transparent the entire existence the the Fed.

The Fed-Treasury Accord of march 1951 noted the Fed greater flexibility to

A) permit interest prices increase. B) let joblessness increase. C) allow inflation accelerate. D) let exchange prices increase.