Question 1

The oil shock in 2007 ________.

Accepted Answer

A)   had little impact on the inflation rate in Canada
B)   led to a sharp increase in the inflation rate
C)   did not impact Canadian output
D)   was beneficial to the Canadian economy because Canada is a net exporter of oilE) A) and C)
F) A) and B)

Question 2

The ________ is the credibility of the central bank,the more rapid will be the ________ in inflation and the ________ will be the loss of output to achieve the inflation objective.

Accepted Answer

A)   greater; decline; lower
B)   greater; increase; lower
C)   greater; decline; greater
D)   greater; increase; greaterE) C) and D)
F) B) and D)

Question 3

Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies,most economists agree that ________.

Accepted Answer

A)   stabilization policies proved more difficult in practice than many economists had expected
B)   stabilization policies proved not to be inflationary
C)   the nondiscretionary policymakers were right in believing that the private economy is inherently stable
D)   the discretionary policymakers were right in believing that the private economy is inherently stableE) B) and D)
F) A) and D)

Question 4

An example of a negative supply shock is ________.

Accepted Answer

A)   carbon cap-and-trade program
B)   a rapid increase in energy costs
C)   an fall in the price of oil
D)   the shale gas revolutionE) C) and D)
F) B) and C)

Question 5

If expectations about policy affect how wages are set,then the case for a(n) ________ policy is much stronger.

Accepted Answer

A)   discretionary
B)   nondiscretionary
C)   interventionist
D)   stabilizationE) A) and B)
F) A) and C)

Question 6

Provide several ways that the central bank could establish credibility.

Accepted Answer

Some ways in which the central bank coul...

Question 7

The interest rate thought to have the most important impact on aggregate demand is the ________.

Accepted Answer

A)   short-term interest rate
B)   T-bill rate
C)   rate on 90-day CDs
D)   long-term interest rateE) All of the above
F) B) and D)

Question 8

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

Accepted Answer

A)   supply-side
B)   discretionary
C)   demand-management
D)   nondiscretionaryE) A) and D)
F) A) and C)

Question 9

The difference in outcomes occurring with a credible nominal anchor and without one,given a negative aggregate supply shock is that ________.

Accepted Answer

A)   the overall economic outlook is better
B)   there is no difference but credibility provides national security
C)   without credible policy, inflation will continue to spiral upwards
D)   with credible policy, the aggregate supply curve shifts back quicklyE) A) and B)
F) A) and C)

Question 10

Between 1981 and 1981,Canada experienced ________.

Accepted Answer

A)   a reduction in inflation
B)   a gradual increase in inflation
C)   a sharp increase in inflation
D)   lower than average interest ratesE) B) and C)
F) A) and B)

Question 11

Describe the two main benefits of a credible nominal anchor.

Accepted Answer

First,a credible nominal anchor acts lik...

Question 12

The Lucas critique indicates that ________.

Accepted Answer

A)   advocates of discretionary policies' criticisms of rational expectations models are well-founded
B)   advocates of discretionary policies' criticisms of rational expectations models are not well-founded
C)   expectations are important in determining the outcome of a discretionary policy
D)   expectations are not important in determining the outcome of a discretionary policyE) C) and D)
F) None of the above

Question 13

How did Canada win the battle against inflation?

Accepted Answer

The Bank of Canada battled against doubl...

Question 14

The best way to keep inflation under control is to ________.

Accepted Answer

A)   abandon discretionary policy
B)   abandon expansionary policy
C)   invoke activist solutions
D)   both A and BE) B) and D)
F) A) and D)

Question 15

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Accepted Answer

A)   Constrained discretion
B)   A policy rule
C)   A discretionary policy
D)   The Taylor ruleE) A) and C)
F) B) and D)

Question 16

The global economic crisis that arose in October 2008 was the result of ________.

Accepted Answer

A)   higher oil prices
B)   the collapse of the subprime mortgage market
C)   the European debt crisis
D)   fiscal and monetary issues stemming from the US debt ceilingE) B) and D)
F) None of the above

Question 17

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

Accepted Answer

A)   a policy of variable money supply growth
B)   supply-side policy
C)   demand-management policy
D)   a constant-money-growth-rate ruleE) C) and D)
F) None of the above

Question 18

The difference in outcomes occurring with a credible nominal anchor and without one,given a positive aggregate demand shock is that ________.

Accepted Answer

A)   with the credible policy there is no shift in the aggregate supply curve
B)   there is no difference but credibility provides national security
C)   without credible policy, inflation will continue to spiral upwards
D)   with credible policy, the aggregate supply curve shifts back quicklyE) C) and D)
F) B) and D)

Question 19

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as ________.

Accepted Answer

A)   the monetarist revolution
B)   the Lucas critique
C)   public choice theory
D)   new Keynesian theoryE) A) and D)
F) A) and C)

Question 20

An example of a rule used in non-discretionary monetary policy is ________.

Accepted Answer

A)   the Taylor rule
B)   the Taylor principle
C)   Keynesian rule
D)   interest rate consistencyE) A) and B)
F) A) and C)

Exam 26: The Role of Expectations in Monetary Policy

The Lucas critique indicates that ________.

Correct AnswerverifiedShow Answer

The ________ is the credibility of the central bank,the more rapid will be the ________ in inflation and the ________ will be the loss of output to achieve the inflation objective.

Correct AnswerverifiedShow Answer

Between 1981 and 1981,Canada experienced ________.

Correct AnswerverifiedShow Answer

The difference in outcomes occurring with a credible nominal anchor and without one,given a positive aggregate demand shock is that ________.

Correct AnswerverifiedShow Answer

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

Correct AnswerverifiedShow Answer

The oil shock in 2007 ________.

Correct AnswerverifiedShow Answer

Provide several ways that the central bank could establish credibility.

Correct AnswerverifiedSome ways in which the central bank coul...View AnswerShow Answer

The difference in outcomes occurring with a credible nominal anchor and without one,given a negative aggregate supply shock is that ________.

Correct AnswerverifiedShow Answer

An example of a rule used in non-discretionary monetary policy is ________.

Correct AnswerverifiedShow Answer

The interest rate thought to have the most important impact on aggregate demand is the ________.

Correct AnswerverifiedShow Answer

If expectations about policy affect how wages are set,then the case for a(n) ________ policy is much stronger.

Correct AnswerverifiedShow Answer

An example of a negative supply shock is ________.

Correct AnswerverifiedShow Answer

Describe the two main benefits of a credible nominal anchor.

Correct AnswerverifiedFirst,a credible nominal anchor acts lik...View AnswerShow Answer

How did Canada win the battle against inflation?

Correct AnswerverifiedThe Bank of Canada battled against doubl...View AnswerShow Answer

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as ________.

Correct AnswerverifiedShow Answer

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Correct AnswerverifiedShow Answer

Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies,most economists agree that ________.

Correct AnswerverifiedShow Answer

The best way to keep inflation under control is to ________.

Correct AnswerverifiedShow Answer

The global economic crisis that arose in October 2008 was the result of ________.

Correct AnswerverifiedShow Answer

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

The is the credibility of the central bank,the more rapid will be the in inflation and the will be the loss of output to achieve the inflation objective.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Some ways in which the central bank coul...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
First,a credible nominal anchor acts lik...
View Answer

Correct Answer
verified
The Bank of Canada battled against doubl...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified