Chapter 28.3 Flashcards
Time lags in the conduct of monetary policy can cause
A) monetary policy to work in the opposite direction to what was initially predicted by economists.
B) an expansionary policy to have a smaller effect than what was expected by policymakers.
C) monetary expansions to work very quickly but cause monetary contractions to work very slowly.
D) difficulty in the timing of appropriate policy and can even lead to destabilization.
E) short-term monetary policy to work more effectively than long-term targeting.
D
Economists at the Bank of Canada estimate that time lags in monetary policy imply that
A) monetary policy is totally ineffective in changing overnight lending rates in the short run.
B) monetary policy is totally ineffective in changing core inflation rates in the long run.
C) monetary policy can cause changes in real GDP to occur in 9-12 months and changes in core inflation to occur in 18-24 months.
D) monetary policy can cause changes in core inflation to occur in 9-12 months and changes in the exchange rate to occur in 18-24 months.
E) monetary policy can cause changes in core inflation to occur in 9 to 12 months and changes in real GDP to occur in 18-24 months.
C
If an economist supports targeting inflation as opposed to monetary fine-tuning, this economist probably believes that time lags in the implementation of monetary policy are
A) short but predictable.
B) short but unpredictable.
C) long and unpredictable.
D) long but predictable.
E) predictable in their short-run effects but unpredictable in the long run.
C
If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them, this would result in
A) higher inflation in the long run.
B) longer time lags in monetary policy.
C) permanently higher unemployment.
D) permanently higher exchange rates for the Canadian dollar.
E) temporary reductions in the interest rate.
B
It might take a while before the effects of changes in monetary policy are realized in the economy because it takes a while for
A) the overnight interest rate and longer-term interest rates to adjust.
B) investment expenditures and net exports to adjust.
C) government purchases to adjust.
D) monetary policy to be implemented via open-market operations.
E) the exchange rate to adjust.
B
Suppose the Bank of Canada is criticized for implementing a contractionary monetary policy at a time when the inflation rate is at or near its target level. One explanation for this policy decision is likely that
A) the Bank regularly maintains a contractionary policy stance in order to keep inflation at or near its target.
B) it is extremely difficult to predict future events and a contractionary policy is the safest policy choice.
C) the Bank anticipates a decrease in Canadian net exports and is acting now because of the unavoidable time lags.
D) the Bank anticipates a decrease in investment spending and is acting now because of the unavoidable time lags.
E) the Bank anticipates a rise in inflation and is acting now because of the unavoidable time lags.
E
