Question : 81) The Bank of Canada’s formal policy target ________. It’s : 1384473

81) The Bank of Canada’s formal policy target is ________. It’s current target is to keep the annual inflation rate close to ________%.

A) core inflation; 1

B) core inflation; 0

C) the money supply; 2

D) CPI inflation; 2

E) the money supply; 1

82) In an effort to maintain inflation at its targeted level the Bank of Canada designs its policies, in the short run, to

A) eliminate all unemployment.

B) keep real GDP close to potential output.

C) minimize the growth of the money supply.

D) allow the aggregate supply curve to close any output gaps.

E) eliminate all negative shocks to the economy.

83) An example of how inflation targeting by the Bank of Canada helps to stabilize the economy is:

A) firms and households are aware of the announced inflation target and adjust their behaviour so as to maintain this level of actual inflation.

B) when a recessionary gap reduces the rate of inflation (below the target level) the Bank of Canada will implement an expansionary monetary policy, which helps to close the gap.

C) when the actual inflation rate falls below the targeted level of inflation, then commercial banks automatically increase deposit creation.

D) when an output gap opens in the economy, the inflationary target adjusts to close the gap.

E) when an output gap opens in the economy, the Bank of Canada chooses the inflation target appropriate for closing the gap.

84) In the short run the Bank of Canada aims to ________, in an effort to ________.

A) enhance any positive shocks; keep inflation within its target band

B) reduce any positive or negative output gaps; keep inflation close to the official target

C) ignore any shocks as they are automatically adjusting; keep GDP growth constant

D) keep actual output within 1%-3% of potential output; keep the money supply growing at a constant rate

E) ignore any shocks as they are automatically adjusting; keep inflation within its target band

85) The economic variables that the Bank of Canada tries to influence are ________ in the short run and ________ in the long run.

A) the distribution of income; the unemployment rate

B) real GDP; the path of the price level

C) the distribution of income; economic efficiency

D) real GDP; the exchange rate

E) the exchange rate; the rate of inflation

86) Inflation targeting

A) is irrelevant to the stability of the economy because of the long-run neutrality of money.

B) is a destabilizing policy because it requires the Bank of Canada to engage in inappropriate policy responses.

C) is a stabilizing policy because the Bank of Canada’s policy adjustments act to stabilize real GDP growth.

D) should be replaced with fiscal policy targeting because of the long-run neutrality of money.

E) creates output gaps that must be then offset with fiscal policy stabilizers.

87) Suppose output is at its potential level and then there is a sudden increase in food and energy prices. This increase

A) makes inflation targeting easier because it makes these problems less relevant.

B) makes inflation targeting harder because these are closely related to excess demand in the economy.

C) would be unlikely to lead to an immediate policy response because it would not appear in “core” inflation.

D) would be offset by a decline in the Canadian dollar, making these price increases irrelevant.

E) is closely related to changes in core inflation so the Bank of Canada uses these for targeting inflation.

88) Inflation that is fully anticipated by workers, firms, and consumers

A) leads to reductions in real incomes for all workers.

B) is hard to predict.

C) improves the efficiency of the price system.

D) does not impact the purchasing power of individuals whose incomes are fully indexed to inflation.

E) has no real or nominal effects in the economy.

89) Which of the following goods are included in Canada’s measure of “core inflation”?

A) natural gas

B) a new car

C) fresh vegetables

D) excise tax on gasoline

E) coffee

90) Consider a central bank that chooses to implement its monetary policy by expanding the money supply by a fixed percentage amount in every year. One important disadvantage with this approach to monetary policy is that it may

A) lead to sustained inflation.

B) be destabilizing if the demand for money is unstable.

C) lead to stable growth of national income.

D) be inconsistent with the Bank of Canada Act.

E) create a recessionary output gap.