Chap008 - Chapter 08 - Policy Preview Chapter 08 Policy...

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Chapter 08 - Policy Preview Chapter 08 Policy Preview Multiple Choice Questions 1. Which of the following is NOT a way in which a central bank can conduct its monetary policy? a. To establish target interest rates and then undertake open market operations to maintain them b. To buy and sell government bonds c. To make small policy changes and readjust policies as needed D . To try to influence aggregate supply by changing interest rates e. To try to influence spending on durable goods and investment by changing interest rates Difficulty: Easy 2. A central bank should try and stabilize the economy in the short run by a. Establishing a clear inflation target and sticking to it no matter what b. Affecting aggregate supply through open market operations C . Affecting aggregate demand through open market operations d. Maintaining a stable growth rate of money supply e. Concentrating only on long-run goals Difficulty: Easy 3. If a central bank is uncertain about whether an economic disturbance is temporary or permanent, it should a. Always wait until the full effect of the disturbance is felt before undertaking a policy change B . Make frequent and modest policy changes and adjusting these policies after receiving feedback on its previous actions c. Announce and then implement major policy changes right away to signal to financial markets that it will address the disturbance vigorously d. Announce a policy change and then wait for financial markets to react, which is often all that is needed to calm economic activity e. None of the above Difficulty: Medium 8-1
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Chapter 08 - Policy Preview 4. In the short run, a central bank can most easily stimulate economic activity by a. Selling government bonds to the public b. Raising interest rates to make investments more profitable c. Lowering the inflation rate though monetary restriction d. Influencing aggregate supply through monetary expansion E . Influencing aggregate demand and accepting a higher price level in the future Difficulty: Easy 5. The U.S. Federal Reserve's Open Market Committee a. Meets regularly to decide on its monetary policy actions b. Formally makes decision by voting on monetary policy changes c. Sometimes reveals its intentions in advance to increase transparency d. Does not follow a clearly established policy rule E . All of the above Difficulty: Easy 6. Who was appointed by President G.W. Bush as Chair of the Board of Governors of the U.S. Federal Reserve System in 2006? A . Ben Bernanke b. Stanley Fischer c. Alan Greenspan d. John B. Taylor e. Paul Volcker Difficulty: Easy 8-2
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Chapter 08 - Policy Preview 7. If it is clear that an economic disturbance is only transitory, a central bank's best policy response may be to A . React moderately or not at all because a major policy change may itself be destabilizing b. Recommend fiscal policy changes, which will have less powerful effects than monetary policy changes c. Act quickly and vigorously so financial markets do not overreact d. Announce a policy change and then wait to see the reaction of financial markets before
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Chap008 - Chapter 08 - Policy Preview Chapter 08 Policy...

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