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Question
The theory that monetary policy conducted on a discretionary, day-by-day basis leads to poor long-run outcomes is referred to as the
A) adverse selection problem.
B) moral hazard problem.
C) time-inconsistency problem.
D) nominal-anchor problem.
Answer
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Related questions
Q:
Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand
A) both models imply that individuals hold only money or only bonds.
B) the Keynesian model implies individuals diversify their asset holdings, while the Tobin model predicts that individuals hold only money or only bonds.
C) the Tobin model implies individuals diversify their asset holdings, while the Keynesian model predicts that individuals hold only money or only bonds.
D) both models imply that individuals diversify their asset holdings.
Answer: C
4) In the Baumol-Tobin model, given that total costs for an individual equals + , where T0 = monthly income, b = brokerage costs, and C = amount raised from each bond transaction, derive the so-called square root rule.
Answer: An individual will minimize their costs. Thus, the optimal level of C is found as follows:
COSTS = +
Q:
Explain and demonstrate graphically the situation of an overvalued exchange rate in a fixed exchange rate system. What alternative policies are available to eliminate the overvaluation of the exchange rate?
Q:
Using the ISLM model, show graphically and explain the effects of a monetary contraction. What is the effect on the equilibrium interest rate and level of output?
Q:
Which of the following is NOT a requirement in selecting a policy instrument?
A) measurability
B) controllability
C) flexibility
D) predictability
Q:
Which of the following is NOT an operating instrument?
A) nonborrowed reserves
B) monetary base
C) federal funds interest rate
D) discount rate
Q:
Under Alan Greenspan and Ben Bernanke, the Federal Reserve was successful in pursuing a ________ policy.
A) preemptive
B) inflation targeting
C) exchange rate targeting
D) monetary targeting
Q:
Unemployment resulting from a mismatch of workers' skills and job requirements is called
A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.
Q:
When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called
A) structural unemployment.
B) frictional unemployment.
C) cyclical unemployment.
D) underemployment.
Q:
Even if the Fed could completely control the money supply, monetary policy would have critics because
A) the Fed is asked to achieve many goals, some of which are incompatible with others.
B) the Fed's goals do not include high employment, making labor unions a critic of the Fed.
C) the Fed's primary goal is exchange rate stability, causing it to ignore domestic economic conditions.
D) it is required to keep Treasury security prices high.
Q:
The time-inconsistency problem in monetary policy can occur when the central bank conducts policy
A) using a nominal anchor.
B) using a strict and inflexible rule.
C) on a discretionary, day-by-day basis.
D) using a flexible, discretionary rule.
Q:
Monetary policy is considered time-inconsistent because
A) of the lag times associated with the implementation of monetary policy and its effect on the economy.
B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run.
C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run.
D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.
Q:
A nominal anchor promotes price stability by
A) outlawing inflation.
B) stabilizing interest rates.
C) keeping inflation expectations low.
D) keeping economic growth low.
Q:
Which of the following statements about the deposit facility in the Eurosystem are correct? A) Banks are paid an interest rate that is typically 100 basis points below the target financing rate. B) The prespecified interest rate on the deposit facility provides a floor for the overnight market interest rate. C) The interest rate on reserves set by the ECB is not always positive. D) All of the above. E) Only A and B.
Q:
The policy tool of changing reserve requirements is
A) the most widely used.
B) the preferred tool from the bank's perspective.
C) no longer used.
D) still used, even with its disadvantages.
Q:
Since 1980, ________ are subject to reserve requirements.
A) only commercial banks
B) only the member institutions of the Federal Reserve
C) only nationally chartered depository institutions
D) all depository institutions
Q:
The Federal Reserve has had the authority to vary reserve requirements since the
A) 1920s.
B) 1930s.
C) 1940s.
D) 1950s.
Q:
The most important advantage of discount policy is that the Fed can use it to
A) precisely control the monetary base.
B) perform its role as lender of last resort.
C) control the money supply.
D) punish banks that have deficient reserves.
Q:
The most common type of discount lending that the Fed extends to banks is called
A) seasonal credit.
B) secondary credit.
C) primary credit.
D) installment credit.
Q:
If net exports increase by 100 and the mpc is 0.75, equilibrium aggregate output increases by
A) 100.
B) 250.
C) 400.
D) 750.
Q:
In a closed economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net exports.
D) consumer expenditure, planned investment spending, government spending, and net exports.
Q:
In the early 1990s, M2 growth underwent a dramatic ________, which some researchers believe ________ be explained by traditional money demand functions.
A) surge; cannot
B) surge; can
C) slowdown; cannot
D) slowdown; can
Q:
Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of
A) reducing risk.
B) reducing income.
C) avoiding taxes.
D) reducing transactions cost.
Q:
Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that
A) the speculative demand for money is interest insensitive.
B) the transactions demand for money is interest insensitive.
C) people will hold a diversified portfolio.
D) people will hold money or bonds but not both.
Q:
Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.
Q:
The theory of portfolio choice indicates that higher interest rates make money ________ desirable, and the demand for real money balances ________.
A) less; falls
B) more; falls
C) less; rises
D) more; rises
Q:
The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate.
A) positively; negatively
B) positively; positively
C) negatively; negatively
D) negatively; positively
Q:
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Q:
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.15 to 2.33
B) decrease from 2.33 to 2.15
C) increase from 1.54 to 1.67
D) decrease from 1.67 to 1.54
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
Q:
When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated