Question Details

Central banking is as much about winning the trust of markets 



1. “Economic growth is supposed to be a good thing, right? Not always. If it gets too strong …..“ The best way of completing this statement is 
a) income maldistribution occurs 
b) inflation is created 
c) unemployment increases 
d) a budget deficit develops 
2. “Just 21,000 new jobs were created in February, compared with forecasts for 125,000, marking another month in which economic growth failed to translate into strong hiring. ___________ allows companies to lift output without boosting payrolls, leaving slack in the economy to keep wages in check and allowing the Fed to view inflation as a distant risk despite powerful growth.” The blank is best filled with 
a)	productivity growth 
b)	lower interest rates 
c)	higher taxes 

d)	unemployment 

3. “Canada- job creation machine churned out 34,300 positions in October, far surpassing expectations, and increasing the odds that the Bank of Canada will ….. The unemployment rate held steady at 7.1 per cent.” Fill in the blank, and explain why the unemployment rate did not fall with so many new jobs. 
a)	raise interest rates; the participation rate rose 
b)	raise interest rates; the participation rate fell 
c)	lower interest rates; the participation rate rose 
d)	lower interest rates; the participation rate fell 

4. “In October 1979, Mr. Volker launched one of modern history- riskiest inflation fights. With consumer prices surging 14% and the bond yield at 15% he dramatically …..….” This clipping is best completed with 
a)	raised taxes 
b)	lowered taxes 
c)	increased the money growth rate 
d)	decreased the money growth rate 

5. “Central banking is as much about winning the trust of markets as adjusting interest rates.” Explain the logic of this statement . If the markets trust the central bank to do the right thing in the long term, then short-term actions by the central bank will not 
a)	create instability 
b)	affect inflation expectations 
c)	disrupt markets 
d)	all of the above 



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