26.2   Lessons for Monetary Policy

1) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank’s conduct of monetary policy. These lessons include:

A) It is dangerous always to associate the easing or tightening of monetary policy with a fall or a rise in short-term interest rates.

B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.

C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.

D) A and B only.

2) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank’s conduct of monetary policy. These lessons include:

A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy.

B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.

C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.

D) A and B only.

3) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank’s conduct of monetary policy. These lessons include:

A) Monetary policy can be highly effective in reviving a weak economy so long as short-term interest rates are not too close to zero.

B) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.

C) Other asset prices beside those on short-term debt instruments contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

D) A and B only.

4) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank’s conduct of monetary policy. These lessons include:

A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy.

B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.

C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.

D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are not important elements in various monetary policy transmission mechanisms.

5) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank’s conduct of monetary policy. Which of the following is not one of these lessons?

A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy.

B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.

C) Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long-run goal for monetary policy.

D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

6) In the late 1990s and early 2000s, the Japanese economy has experienced ________.

A) easy monetary policy as indicated by falling nominal interest rates

B) easy monetary policy as indicated by short-term interest rates near zero

C) tight monetary policy as indicated by falling asset prices

D) tight monetary policy as indicated by short-term interest rates near zero

7) Recent Japanese experience has been characterized by tight monetary policy, as indicated by ________.

A) falling interest rates

B) short-term interest rates near zero

C) falling asset prices

D) low real interest rates

8) In a period of deflation, when there is a declining price level, ________ nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is easy.

A) low; low

B) low; high

C) high; low

D) high; high

9) In a period of deflation, when there is a declining price level, low nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is ________.

A) low; tight

B) low; easy

C) high; tight

D) high; easy