Economics Questions

Conventional monetary policy would become more expansionary when interest rates fell to the floor of the effective lower bound, i.e., the effective lower bound on the policy rate would be less binding with aA) lower federal funds rate.B) higher federal funds rate.C) lower inflation target.D) higher inflation target.

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 real economic activity.A) below; highB) below; lowC) above; highD) above; low

The type of monetary policy regime that the Federal Reserve has followed From the 1980s up until the time Ben Bernanke became chair of the Federal Reserve in 2006 can best be described asA) monetary targeting.B) inflation targeting.C) policy with an implicit nominal anchor.D) exchange-rate targeting.

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

When asset prices increase above their fundamental values it is called anA) asset-price bubble.B) irrational bubble.C) asset-price spike.D) irrational spike.

Lessons that economists and policy makers have learned from the recent global financial crisis includeA) developments in the financial sector have a far greater impact on economic activity than was earlier realized.B) the effective lower bound on interest rates can be a serious problem.C) the cost of cleaning up after a financial crisis is very high.D) price and output stability do not ensure financial stability.E) All of the above.

Everything else held constant, a credit-drive bubble is generally considered to have the potential to cause ________ damage to an economy compared to an irrational exuberance bubble.A) lessB) about the same amount ofC) moreD) either more, less, or the same amount of

The problems of raising the level of the inflation target includeA) if the effective-lower-bound problem is rare, then the benefits of a higher inflation target are not very large.B) the costs of higher inflation in terms of the distortions it produces in the economy are high.C) it is more difficult to stabilize the inflation rate at a higher targeting level.D) all of the above.

A credit-driven bubble arises when ________ in lending causes ________ in asset prices which can cause ________ in lending.A) a decrease; a decrease; an increaseB) a decrease; an increase; an increaseC) an increase; an increase; a further increaseD) a decrease; a decrease; a further decrease

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.A) demand: tightenB) demand; loosenC) supply; tightenD) supply; loosen

Estimates from large macroeconometric models of the U.S. economy suggests that it takes over ________ for monetary policy to affect output and over ________ for monetary policy to affect the inflation rate.A) 1 year; 2 yearsB) 2 years; 1 yearC) 1 year; 6 monthsD) 6 months; 1 year

In the FOMC's "Statement on Long-Run Goals and Monetary Policy Strategy, "the FOMC agreed to a single numerical value of the inflation objective, 2% on the ________.A) PCE deflatorB) GDP deflatorC) CPID) PPI

Which of the following is not an advantage of inflation targeting?A) reduction of the time-inconsistency problemB) increased monetary policy transparencyC) There is an immediate signal on the achievement of the target.D) consistency with democratic principles

The first country to adopt inflation targeting wasA) the United Kingdom.B) Canada.C) New Zealand.D) Australia.

Which of the following is not a disadvantage to inflation targeting?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 a lack of transparency.

Which of the following is not a disadvantage of of the Fed's "just do it" approach to monetary policy?A) There is low transparency of policy.B) There is low accountability for central bankers.C) This type of policy make the Fed more susceptible to the time-inconsistency problem.D) It relies on a stable money-inflation relationship.

Which of the following is not an element of inflation targeting?A) a public announcement of medium-term numerical targets for inflationB) an institutional commitment to price stability as the primary long-run goalC) an information-inclusive approach in which only monetary aggregates are used in making decisions about monetary policyD) increased accountability of the central bank for attaining its inflation objectives

In both New Zealand and Canada, what has happened to the unemployment rate since the countries adopted inflation targeting?A) The unemployment rate increased sharply.B) The unemployment rate remained constant.C) The unemployment rate has declined substantially after a sharp increase.D) The unemployment rate declined sharply immediately after the inflation targets were adopted.

Having interest rate stabilityA) allows for less uncertainty about future planning.B) leads to demands to curtail the Fed's power.C) guarantees full employment.D) leads to problems in financial markets.

After Ben Bernanke became chair of the Fed in 2006, heA) increased Fed transparency.B) abandoned inflation targeting.C) used "just do it" policy.D) increased the opacity of the policymaking.