Question Details

The central bank must have announced that it will be targeting on 


1. "But monetary policy cannot be tuned to real economic variables like growth or employment, not only because policy takes effect with long and uncertain lags, but because any commitment to real growth targets simply invites workers and business to increase wages and prices at will, in the knowledge that the central bank will ratify their demands via the money supply." Ratifying demands via the money supply means that money growth will be 
a) fixed at a low, steady rate b) whatever is needed to prevent inflation 
c) whatever is needed to maintain full employment 
d) whatever is needed to maintain a desired interest rate 
2. "The realistic alternative to high interest rates is not lower interest rates (except temporarily) but even higher interest rates and a monetary inflation that would make our heads spin." Which of the following statements seems out of place in this context? 
a) the Fed can raise interest rates by selling bonds and the lower them by buying bonds 
b) targeting on the interest rate is a dangerous monetary policy in inflationary environments 
c) the Fed could become caught up in a vicious cycle of increasing the money supply to lower the interest rate leading to higher inflationary expectations and higher interest rates 
d) lowering interest rates in an inflationary environment requires lowering inflation which requires a restrictive monetary policy producing initially a higher interest rate 
3. "We at the Fed are frequently pressed by people to do things that would involve giving up control over money creation without any apparent recognition on their part that 94 
that is what they are asking. We, of course, have to refuse." Which of the following is not an example of such a request? 
a) adopt the monetarist rule b) produce an unemployment rate lower than the NRU. 
c) finance government deficits to avoid the higher interest rates they produce. 
d) effect an immediate lowering of the interest rate in an inflationary environment 
4. "There is little doubt that the key reason for this slide toward ever more inflation was an effort by public policy in most countries to achieve and maintain more output and employment from their economies than was consistent with price stability." Which of the following is not an explanation for this? 
a) the government was increasing taxes higher and higher 
b) monetary policies were targeting unemployment instead of inflation 
c) monetary authorities increased their money supplies at too high a rate 
d) lowering unemployment below the NRU requires accelerating inflation 
5. "The message from the central bank to the private sector is: Do not give in to inflationary psychology; Do not assume that you can easily accommodate cost pressures; and Do not expect monetary accommodation of accelerating energy price increases." The central bank must have announced that it will be targeting on 
a) an interest rate b) an energy price c) full employment d) a money growth rate



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