Question Details

To be vigilant about inflation the central bank should 


1. "In the longer term, however, things will be different. It is worth recalling that seigniorage is no longer being exercised by all those seigneurs - emperors, kings and imperial governments - who once possessed it. The reason is simple: seigniorage is such a tempting privilege that it always ends up being abused." The outcome of abusing seigniorage is 
a) high inflation b) high interest rates c) high unemployment d) both a) and b) above 
2. "As the election draws nearer, the prospect of an economy awash in money becomes likely. It is therefore reassuring that the central bank remains vigilant about the dangers of inflation." To be vigilant about inflation the central bank should 
a) fix the interest rate b) maintain full employment 
c) prevent the money growth rate from rising 
d) follow faithfully instructions from its political masters 
3. "There's nothing wrong with any level of interest rates produced by the natural forces in the economy. But artificially lowered rates are dangerous because they are produced by artificial increases in the money supply. And the extra money sluicing around in the system at a time when production is close to capacity is more likely to go into higher prices than anywhere else." A Fed effort to lower the interest rate by increasing money growth when at full employment will end up 
a) increasing taxes b) increasing bond prices 
c) decreasing unemployment d) increasing the interest rate 
4. "I wouldn't say that a lower dollar is inflationary. A lower dollar means you're paying more for your imports. In other words, it adds to your cost of living, and it can become inflationary if ....." Complete this clipping. 
a) it causes real wages to fall b) it moves us below full employment 95 
c) taxes do not fall to offset this higher cost 
d) this higher cost is accommodated by the central bank 
5."Governments increase the money supply too rapidly because it enables them to finance an expanding government sector without increasing taxes or borrowing from the economy's savings." 
 This means of financing is referred to as 
a) seigniorage b) printing money 
c) selling bonds to the central bank d) all of the above 
66. Borrowing from the economy's savings means 
a) printing money b) lowering taxes 
c) lowering interest rates d) selling bonds to the public



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