Question 1

Since 1989, the Bank of Canada used ________ as the operating target and ________ as the ultimate goal of monetary policy.

Accepted Answer

Since 1989, the Bank of Canada has used the overnight interest rate as the operating target and the inflation rate as the ultimate goal of monetary policy. This is done through the use of inflation targeting, where the Bank sets an explicit target for the rate of inflation and adjusts the overnight interest rate in order to achieve that target. This approach has been successful in keeping inflation low and stable in Canada.

Question 2

When interest rates in the United States increased sharply in late 1979, the Bank of Canada responded by an extremely restrictive monetary policy to ________.

Accepted Answer

When interest rates in the United States increased sharply in late 1979, the Bank of Canada responded by implementing an extremely restrictive monetary policy to resist both the depreciation of the Canadian dollar and the possible inflationary shock from import prices.

Question 3

Bank of Canada policy since 1989 suggests ________.

Accepted Answer

Since 1989, the Bank of Canada has not adopted a policy that focuses on using a monetary aggregate as its intermediate target, nor has it shown a decreased concern for fluctuations in the overnight interest rate or a greater concern for exchange rates over interest rates. Instead, its policies have primarily focused on targeting inflation, aiming to keep it within a specific range to ensure economic stability.

Question 4

International policy coordination refers to ________.

Accepted Answer

International policy coordination refers to central banks of major nations adopting policies in pursuit of joint objectives to ensure the stability of the global financial system. This requires cooperation and communication among central banks to achieve common goals, such as maintaining exchange rate stability or preventing financial crises. Option A and B depict a lack of coordination and disregard for global consequences. Option D assumes that all countries have the same economic conditions and needs, which is unlikely to be the case.

Question 5

During the 1982-1988 period, the Bank of Canada looked at a list of factors in order to design and implement monetary policy. This list included ________.

Accepted Answer

The Bank of Canada used all of the following factors (interest rate, exchange rate, and money supply) to design and implement monetary policy during the 1982-1988 period.

Question 6

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in "core CPI," because ________.

Accepted Answer

Core CPI excludes volatile components, such as food, energy, and the effect of indirect taxes, making it a more stable measurement of inflation. Additionally, core inflation is useful in assessing whether trend inflation is on track for the medium term, allowing for more accurate inflation targeting by the Bank of Canada. Therefore, both A and B are correct.

Question 7

The Bank of Canada can engage in preemptive strikes against a rise in inflation by ________ the overnight rate; it can act preemptively against negative demand shocks by ________ the overnight rate.

Accepted Answer

When the Bank of Canada perceives a rise in inflation, it can raise the overnight rate to discourage borrowing and spending, which in turn can help reduce demand and keep prices from rising higher. On the other hand, when the Bank of Canada sees negative demand shocks, such as a recession, it can lower the overnight rate to stimulate borrowing and spending, which can increase demand and help stabilize the economy.

Question 8

During the 1975-1981 period, although the Bank of Canada was successful in keeping actual M1 growth within the target range, ________.

Accepted Answer

Despite the Bank of Canada successfully keeping M1 growth within the target range, the inflation rate by the end of the 1970s was almost at the same level as when monetary gradualism was introduced in 1975. Additionally, a series of financial innovations motivated individuals and firms to substitute out of M1 and into M2, which caused the growth rate of M2 to increase.

Question 9

During the 1982-1988 period, the Bank of Canada used ________ as the operating target and ________ as the intermediate target.

Accepted Answer

The answer of During the 1982-1988 period, the Bank of...

Question 10

During the 1982-1988 period, the Bank of Canada ________.

Accepted Answer

The answer of During the 1982-1988 period, the Bank of...

Question 11

The Bank of Canada adopted inflation targets ________.

Accepted Answer

The Bank of Canada adopted inflation targets because the 1982-1988 checklist approach to policy made it difficult for the Bank to control money growth and inflation, following a three-year campaign to promote price stability as the long-term goal of monetary policy, and by announcing explicit targets for the inflation rate, rather than for money growth.

Question 12

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in the CPI, because the CPI ________.

Accepted Answer

The Bank of Canada chose to announce explicit targets for the rate of change in the CPI because it is the most commonly used and understood price measure in Canada and comes out monthly without revisions, whereas other price measures are frequently revised.

Question 13

The midpoint of the Bank of Canada's inflation target range is ________.

Accepted Answer

The midpoint of Bank of Canada's inflation target range is 2 percent. This means that the Bank of Canada aims to keep inflation at around 2 percent, which is considered to be the optimal level for economic growth and stability.

Question 14

The Bank of Canada's anti-inflation policy during the 1982-1988 period can be viewed as one where ________ became the operating target and ________ was the intermediate target.

Accepted Answer

During the 1982-1988 period, the Bank of Canada used the interest rate as the operating target to influence economic conditions, while the exchange rate was used as the intermediate target to help control inflation and stabilize the economy.

Question 15

During the 1975-1981 period, although the Bank of Canada was successful in keeping actual M1 growth within the target range, ________.

Accepted Answer

All of the options are correct. Despite the Bank of Canada's success in keeping M1 growth within the target range during 1975-1981, the inflation rate remained high, was almost at the same level by the end of the 1970s as when monetary gradualism was introduced in 1975, and the demand for M1 became unstable.

Question 16

The Bank of Canada formally abandoned monetary targeting ________.

Accepted Answer

The Bank of Canada formally abandoned monetary targeting in November 1982 due to the uncertainty about the stability of M1 and the uncertainty about monetary aggregates as reliable guides to monetary policy.

Quiz 17: The Conduct of Monetary Policy: Strategy and Tactics

Since 1989, the Bank of Canada used as the operating target and as the ultimate goal of monetary policy.

When interest rates in the United States increased sharply in late 1979, the Bank of Canada responded by an extremely restrictive monetary policy to ________.

Bank of Canada policy since 1989 suggests ________.

International policy coordination refers to ________.

During the 1982-1988 period, the Bank of Canada looked at a list of factors in order to design and implement monetary policy. This list included ________.

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in "core CPI," because ________.

The Bank of Canada can engage in preemptive strikes against a rise in inflation by the overnight rate; it can act preemptively against negative demand shocks by the overnight rate.

During the 1975-1981 period, although the Bank of Canada was successful in keeping actual M1 growth within the target range, ________.

During the 1982-1988 period, the Bank of Canada used as the operating target and as the intermediate target.

During the 1982-1988 period, the Bank of Canada ________.

The Bank of Canada adopted inflation targets ________.

In its most recent attempt in lowering the inflation rate, the Bank of Canada announces explicit targets for the rate of change in the CPI, because the CPI ________.

The midpoint of the Bank of Canada's inflation target range is ________.

The Bank of Canada's anti-inflation policy during the 1982-1988 period can be viewed as one where became the operating target and was the intermediate target.

During the 1975-1981 period, although the Bank of Canada was successful in keeping actual M1 growth within the target range, ________.

The Bank of Canada formally abandoned monetary targeting ________.