Question : 101) If an economist supports targeting inflation as opposed to : 1384475

101) If an economist supports targeting inflation as opposed to monetary fine-tuning, this economist probably believes that time lags in the implementation of monetary policy are

A) short but predictable.

B) short but unpredictable.

C) long and unpredictable.

D) long but predictable.

E) predictable in their short-run effects but unpredictable in the long run.

102) Long time lags in the effectiveness of monetary policy

A) decrease the effectiveness of the Bank of Canada’s fine tuning.

B) decrease the destabilizing side-effects of Bank of Canada’s monetary policy.

C) increase the effectiveness of the Bank of Canada’s fine tuning.

D) increase the growth of the money supply.

E) decrease the growth of the money supply.

103) If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them, this would result in

A) higher inflation in the long run.

B) longer time lags in monetary policy.

C) permanently higher unemployment.

D) permanently higher exchange rates for the Canadian dollar.

E) temporary reductions in the interest rate.

104) It might take a while before the effects of changes in monetary policy are realized in the economy because it takes a while for

A) the overnight interest rate and longer-term interest rates to adjust.

B) investment expenditures and net exports to adjust.

C) government purchases to adjust.

D) monetary policy to be implemented via open-market operations.

E) the exchange rate to adjust.

105) Which of the following is correct regarding the implications of time lags associated with monetary policy?

A) Lags in monetary policy would be relatively longer in a closed economy than in an open one.

B) The destabilizing effects of monetary policy will not be observed if it is used only for fine-tuning purposes.

C) The Bank of Canada should design its policy based upon what has been already observed in the economy.

D) The Bank of Canada generally responds to shocks that are persistent and of a significant magnitude.

106) Suppose the Bank of Canada is criticized for implementing a contractionary monetary policy at a time when the inflation rate is at or near its target level. One explanation for this policy decision is likely that

A) the Bank regularly maintains a contractionary policy stance in order to keep inflation at or near its target.

B) it is extremely difficult to predict future events and a contractionary policy is the safest policy choice.

C) the Bank anticipates a decrease in Canadian net exports and is acting now because of the unavoidable time lags.

D) the Bank anticipates a decrease in investment spending and is acting now because of the unavoidable time lags.

E) the Bank anticipates a rise in inflation and is acting now because of the unavoidable time lags.

107) Most economists now accept the proposition that

1) to reduce the long-run rate of inflation there must be a sustained monetary contraction;

2) monetary policy should be aimed at controlling the inflation rate in the long run, with a short-run focus on reducing output gaps;

3) high inflation, even if it is largely expected, can generate significant costs for the economy.

A) 1 only

B) 2 only

C) 3 only

D) 2 and 3

E) 1, 2 and 3

108) In 1980, the annual inflation rate in Canada was

A) over 12%.

B) roughly 8%.

C) roughly 6%.

D) roughly 2%.

E) roughly zero.

109) In the early 1980s, the Bank of Canada contracted the rate of growth of the money supply in an attempt to reduce inflation. One problem with this policy was that

A) an unexpected increase in the demand for money caused the policy to be more contractionary than necessary, leading to a recession.

B) an unexpected increase in the demand for money caused the policy to be more expansionary than necessary, leading to further inflation.

C) the demand for money dropped at the same time, causing the policy to be more contractionary than necessary, leading to an undesirable boom.

D) the demand for money dropped at the same time, causing the policy to be more expansionary than necessary, leading to further inflation.

E) it proved completely ineffective in influencing either real GDP or the price level.

110) During a period of renewed inflation fears in 1988, the governor of the Bank of Canada, Mr. John Crow, announced that monetary policy would henceforth be guided more by

A) exchange rate targets since depreciation of the Canadian dollar tends to be inflationary.

B) real GDP growth.

C) the goal of long-term “price stability.”

D) the level of real income growth and “price stability.”

E) unemployment levels and the level of prices.