Question : 71) Given its existing policy regime of “inflation targeting,” the : 1384472

71) Given its existing policy regime of “inflation targeting,” the Bank of Canada would likely react to a large positive aggregate demand shock by

A) lowering the bank rate.

B) buying bonds from the open market.

C) increasing its target for the overnight interest rate.

D) decreasing its target for the overnight interest rate

E) ignoring the shock and allowing the economy to adjust.

72) Given its existing policy regime of “inflation targeting,” the Bank of Canada would likely react to a large negative AD shock by

A) raising the bank rate.

B) selling bonds on the open market.

C) increasing its target for the overnight interest rate.

D) decreasing its target for the overnight interest rate

E) ignoring the shock and allowing the economy to adjust.

73) The long-run target currently used by the Bank of Canada is to set

A) M2 = real GDP/M1

B) a long-run target range for the overnight lending rate.

C) a long-run target range for the Canadian-U.S. exchange rate.

D) a long-run target range for the 5-year mortgage rate.

E) a long-run target range for the inflation rate.

74) Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy, just like the automatic fiscal stabilizers. Choose the most appropriate response to this statement. The statement is:

A) true, because an inflationary gap is met with a contractionary monetary policy.

B) true, because a recessionary gap is met with an expansionary monetary policy.

C) not true, because inflation targeting requires active policy decisions by the Bank of Canada, whereas fiscal stabilizers need no policy implementation.

D) not true, because inflation targeting automatically maintains inflation within the target range, whereas fiscal stabilizers require government policy decisions.

E) true, because inflation targeting and fiscal stabilizers are essentially the same policy tool.

75) Because of the volatility of food and energy prices, the Bank of Canada pays more attention in the short run to changes in ________ than to changes in ________.

A) core inflation; total CPI inflation

B) total CPI inflation; core inflation

C) total CPI inflation; inflation of the GDP deflator

D) inflation of the GDP deflator; total CPI inflation

E) the nominal exchange rate; the real exchange rate

76) One problem with focusing on the CPI when conducting monetary policy is that

A) many elements in the CPI change for reasons unrelated to the state of the Canadian economy.

B) it is closely related to the value of M2.

C) changes in monetary policy have little effect on the CPI, especially in the long run.

D) the CPI is too stable to accurately reflect the changes occurring in the Canadian economy.

E) the CPI distorts the value of commercial bank reserves.

77) Most central banks in the developed countries focus their attention on

A) the elimination of output gaps.

B) reducing unemployment.

C) the reduction and control of inflation.

D) alleviating the harmful effects of inflation.

E) the growth of potential output.

78) High and uncertain inflation is damaging to the economy because

A) the price system is no longer capable of effectively signalling changes in relative scarcity through changes in relative prices.

B) individuals who receive their incomes in fixed nominal terms are made worse off.

C) there can be unexpected reallocations of real income between workers and firms.

D) there can be unexpected reallocations of real income between borrowers and lenders.

E) All of the above.

79) It is widely accepted by economists that monetary policy is the most important determinant of a country’s

A) level of real GDP.

B) level of potential output.

C) aggregate supply curve.

D) long-run rate of inflation.

E) long-run rate of economic growth.

80) As of 2012, the Bank of Canada’s policy objective is to maintain inflation at or near the target of

A) 0%.

B) 1%.

C) 2%.

D) 3%.

E) 4%.