Deck 13: A State-Centered Approach to Monetary and Exchange-Rate Policies

Question 1

During the 1960s in the United States,the inflation-unemployment trade-off occurred within a range of inflation which was,on average,about

A) 1 %.
B) 2%.
C) 3%.
D) 4%.
E) 5%.

Answer 1

C

Question 2

According to Oatley,

A) lower inflation during the 1970s did not reduce unemployment relative to the 1960s.
B) higher inflation in the 1980s did not raise unemployment relative to the 1970s.
C) higher inflation in the 1990s did not raise unemployment relative to the 1980s.
D) lower inflation in the 1990s did not raise unemployment relative to the 1980s.
E) higher inflation in the 1990s did raise unemployment relative to the 1980s.

Answer 2

D

Question 3

According to Oatley,granting the central bank independence should lead to

A) short-term lower inflation.
B) short-term lower unemployment.
C) short-term political convenience.
D) long-term higher economic growth.
E) long-term higher unemployment.

Answer 3

D

Question 4

According to Figure 13.5,for 1981-1990 for the six countries listed,if we add the inflation rate to the unemployment rate (lowest is best),the country with the lowest score is

A) the United States.
B) Germany.
C) France.
D) Britain.
E) Japan.

Question 5

According to Oatley's data,the country with the greatest economic growth with the least central bank independence was

A) Japan.
B) Norway.
C) Belgium.
D) Italy.
E) Germany.

Question 6

According to the data presented in the Oatley book,there is

A) no evidence that countries with higher inflation experienced stronger economic growth or lower unemployment.
B) some evidence that countries with higher inflation experienced stronger economic growth or lower unemployment.
C) no evidence that countries with higher inflation experienced weaker economic growth or lower unemployment.
D) no evidence that countries with lower inflation experienced weaker economic growth or higher unemployment.
E) some evidence that countries with lower inflation experienced weaker economic growth or higher unemployment.

Question 7

The price stability strategy during the 1980s

A) was a reaffirmation of Keynesian principles.
B) asserts that the only proper objective of monetary policy was to achieve and maintain a very low and stable rate of inflation.
C) asserts that the only proper objective of monetary policy was to achieve and maintain a very high but stable rate of inflation.
D) asserts that the only proper objective of monetary policy was to achieve and maintain a very low even if unstable rate of inflation.
E) occurred first in Switzerland.

Question 8

According to Figure 13.5,for 1964-1970 for the six countries listed,if we add the inflation rate to the unemployment rate (lowest is best),the country with the lowest score is

A) the United States.
B) Germany.
C) France.
D) Britain.
E) Japan.

Question 9

According to Oatley,a good example of a highly independent central bank (1969-1995)is

A) the Reserve Bank of Australia.
B) the Bank of France.
C) the Swiss National Bank.
D) the Bank of Japan.
E) the Bank of Britain.

Question 10

Which of the following statements is not a function of central bank independence?

A) The central bank can set monetary policy free from the interference by the government.
B) The central bank is free to decide what economic objective to pursue.
C) The central bank is free to decide how to set monetary policy in pursuit of the objective.
D) Central bank decisions can be reversed by other branches of the government.
E) Central bank decisions cannot be reversed by other branches of the government.

Question 11

According to Figure 13.6,which plots data for 1969-1995,the two countries with the lowest unemployment with the least central bank independence were

A) Italy and Belgium.
B) Norway and Japan.
C) Japan and Sweden.
D) Austria and Germany.
E) Italy and Canada.

Question 12

The natural rate of unemployment is the rate of unemployment

A) to which an economy will return after a recession or a boom.
B) which is determined by the country's minimum wage.
C) which could be zero.
D) which cannot be raised by labor market institutions.
E) which is determined by the rate of inflation.

Question 13

According to Oatley,a factor that reduces the inconsistency between democracy and independent central banks is that

A) legislatures cannot withdraw the independence of central banks.
B) central bankers are typically appointed by elected officials for limited terms of office.
C) they are not the only political institutions that are granted independence from electoral politics in democracies.
D) monetary policy is a rather minor policy instrument at a government's disposal.
E) the economic benefit is overwhelming more important than the political inconvenience.

Question 14

A time-consistency problem arises when

A) the best course of action at a particular moment in time differs from the best course of action in general.
B) the best course of action at the beginning is usually the best course of action in general.
C) the best course of action at the end is usually the best course of action in general.
D) there is no way of knowing what the best course of action is in general.
E) the best course of action at a particular moment in time is the same as the best course of action in general.

Question 15

According to Figure 13.5,for 1971-1980 for the six countries listed,if we add the inflation rate to the unemployment rate (highest is worst),the United States had an overall score that was

A) highest.
B) second highest.
C) third highest.
D) third lowest.
E) second lowest.

Question 16

The shift from Keynesian strategies to the pursuit of price stability occurred first in

A) the United States.
B) Germany.
C) Britain.
D) France.
E) Japan.

Question 17

According to the data presented in the Oatley book,during the period 1964-1990

A) countries with relatively low inflation rates have experienced no economic growth.
B) countries with relatively low inflation rates have experienced lower economic growth.
C) countries with relatively high inflation rates have experienced higher economic growth.
D) if we exclude Germany, the negative relationship between inflation and economic growth disappears.
E) if we exclude Japan, the negative relationship between inflation and economic growth disappears.

Question 18

According to Figure 13.5,for 1964-1990 for the six countries listed,if we add the inflation rate to the unemployment rate (highest is worst),the country with the highest score for the whole period was

A) the United States.
B) Germany.
C) France.
D) Britain.
E) Japan.

Question 19

The accelerationist principle stipulates that a government determined to use monetary policy to keep

A) employment below the natural rate for any lengthy period will have to continually increase the rate of inflation to do so.
B) unemployment below the natural rate for any lengthy period will have to continually increase the rate of inflation to do so.
C) unemployment below the natural rate for a short period will have to continually increase the rate of inflation to do so.
D) unemployment below the natural rate for any short period will have to continually decrease the rate of inflation to do so.
E) unemployment above the natural rate for any lengthy period will have to continually increase the rate of inflation to do so.

Question 20

According to Oatley's data in chapter 13,which plots data for 1969-1995,the countries with the highest and lowest inflation rates respectively were

A) Norway and Japan.
B) Italy and Germany.
C) Britain and Austria.
D) France and Canada.
E) Japan and Germany.

Question 21

Explain and discuss how the Keynesian policy revolution came to an end as a result of prolonged inflation in the 1970s and 1980s.

Question 22

According to Oatley,

A) very little research energy has been devoted to considering why the behavior and policies of one independent central bank differs substantially from the behavior and policies of another.
B) a great deal of research energy has been devoted to considering why the behavior and policies of one independent central bank differs substantially from the behavior and policies of another.
C) most scholarship on central banks assumes that all independent central banks are fundamentally different.
D) freed from the pressures of electoral politics, independent central banks are generally assumed to pursue price flexibility.
E) freed from the pressures of electoral politics, independent central banks are generally assumed to pursue the minimum financial regulations possible.

Question 23

The two principal criticisms of the state-centered approach to monetary politics are

A) it is more prescriptive than explanatory and it does not answer what incentives for currency strength exist for the people who run independent central banks.
B) it is more explanatory than prescriptive and it does not answer what incentives for price stability exist for the people who run independent central banks.
C) it is more prescriptive than explanatory and it does not answer what biases against labor exist for the people who run independent central banks.
D) it is more prescriptive than explanatory and it does not answer what incentives for price stability exist for the people who run independent central banks.
E) it is more prescriptive than explanatory and it does not answer what biases for capital savers exist for the people who run independent central banks.

Question 24

Discuss the logic and the evidence that all countries do,in fact,have a natural rate of unemployment.How long is it reasonable to wait after a recession or a boom for this long-run equilibrium to appear?

Question 25

How strong is the negative relationship between inflation and unemployment? Give some examples to justify your claim.

Question 26

In today's Europe,the ECB sets interest rates aimed at low inflation and European governments can do little to change the ECB's policy.

Question 27

According to Oatley,the reason inflation fell in the 1980s in Europe was because

A) the fall in energy prices lowered production costs dramatically.
B) unions and businesses were convinced that the government would devalue their currencies.
C) the EMS took away the control of monetary policy away from government.
D) the ECB was one of the world's most independent central banks.
E) European governments accepted higher unemployment that tight monetary policies generated.

Question 28

During the 1970s and 1980s,and even as late as the mid-1990s,European governments used monetary policy to pursue their particular economic policy goals which typically reflected the interests of their domestic interest groups.

Question 29

Explain the dynamic and concept of the accelerationist principle in the context of the United States between 1961 and 1999.How unique was the American experience?

Question 30

According to the data in the Oatley book,which of the following statement is true?

A) There is overwhelming evidence that countries with more independent central banks have experienced lower rates of inflation.
B) There is no evidence that countries with more independent central banks have experienced lower rates of economic growth.
C) There is no evidence that countries with more independent central banks have experienced lower rates unemployment.
D) There is strong evidence that independent central banks have been better able to deliver low inflation than governments have.
E) There is strong evidence that governments have been better able to deliver low inflation than independent central banks have.

Question 31

Data strongly suggest that countries with relatively high inflation rates have experienced lower economic growth,whereas countries with relatively low rates of inflation have had higher economic growth.

Question 32

The most independent central bank in the EU before the creation of the European Central Bank (ECB)was the

A) Bundesbank.
B) Reichsbank.
C) Swiss National Bank.
D) Reserve Bank of Austria.
E) Bank of England.

Question 33

As the euro appreciated in 2007-2008,European business associations called upon EU governments to pressure the US,Japan,and China to take steps to strengthen their currencies.

Question 34

Governments eventually tried to establish a credible commitment to low inflation by creating independent central banks that tied their hands.

Question 35

Since the creation of highly independent central banks,governments have relinquished control over exchange rate policy.

Question 36

A principal criticism of the state-centered approach to monetary politics is that it is more prescriptive than explanatory.

Question 37

How does inflation have a large negative impact on a country's economic performance? How do some domestic economic interests profit from inflation?

Question 38

Governments can easily make credible commitments to low inflation if they want to because of the time-consistency paradox.

Question 39

Contemporary economic theory asserts that no Keynesian stable trade-off between inflation and unemployment exists.

Question 40

We need some better explanation for why governments that are supposedly only concerned with short term political gains create central bank institutions whose sole purpose is to raise long-term social welfare.

Question 41

How can the interaction between wage bargainers and the government have perverse consequences for social welfare?

Question 42

Discuss whether and why the behavior of equally independent central banks can substantially differ in both behavior and policy.

Question 43

Discuss and predict why future politics of monetary and exchange=rate policies between elected officials and central banks will be more or less conflictual.

Question 44

Are independent central banks compatible with democratic principles?

Question 45

What is meant by the time-consistency problem and how does it affect a government's commitment to low inflation?