Question Details

If a central bank believed in this link it would follow a policy of targeting 



1. Suppose the money multiplier is 4, the income multiplier with respect to the money supply is 5, nominal income growth is 8% and the money supply is $400b. Seigniorage is 
a) $8b b ) $32b c) $6.4b d) none of the above 
2. “The biggest criticism of central bankers is that their confidence in the link between the inflation rate and economic stability caused them to underestimate the dangers of asset bubbles.” If a central bank believed in this link it would follow a policy of targeting on the 
a) interest rate b) real growth rate c) inflation rate d) money supply growth rate 
3. ”Most central bankers, including those at the Fed, don’t allow monetary policy to be guided by a target for money supply growth. This is because …..” The best way to complete this statement is 
a)	money growth is too difficult to measure 
b)	velocity is unstable 
c)	money growth is not fully under the control of the Fed 
d)	all of the above 

4. “Financial innovation and the spread of U.S. currency throughout the world have broken down relationships between money, inflation and growth, making monetary gauges …….” This statement is best completed with 
a)	even more important for formulating monetary policy 
b)	necessary for measuring the impact of monetary policy 
c)	the most crucial ingredient for applying a monetary rule 
d)	unreliable measures of the influence of monetary policy 

5. “With the economy already running a negative output gap of 6%, a lack of money growth will likely only result in ….” This clipping is best completed with 59 

	a) higher prices b) a larger negative output gap c) lower interest rates d) more taxes 



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