17-18

Question 1

central banks are in control of

Answer 1

monetary policy

Question 2

central banks can act as a

Answer 2

leader of last resort to distressed banks
and banker to the government

Question 3

central bank mandates often include

Answer 3

• stabilize inflation
• stabilize output and promote growth
• lower unemployment

Question 4

intermediate targets are variables that

Answer 4

1. reliably track future inflation
2. the central bank can control

Question 5

three main forms of intermediate targets

Answer 5

1. money supply
2. exchange rates
3. inflation forecasts

Question 6

problems of money supply targeting

Answer 6

• which money supply to control
  -velocity highly unpredictable
• what to do in response to changes in CB policy

Question 7

exchange rate targets goal

Answer 7

maintain a fixed exchange rate

Question 8

exchange rate targets benefits

Answer 8

-similar inflation rate as other country
- fosters capital inflows by reducing exchange rate risk

Question 9

lower aggregate demand leads to

Answer 9

gdp and prices fall

Question 10

taylor rules

Answer 10

nominal interest rate = equilibrium nom. Intr. rate + (sigma*Output Gap) + { alpha *(Inflation - Inflation Target) }

Question 11

quantitative easing

Answer 11

the CB buys illiquid or risky assets with new money to increase liquidity