MONETARY POLICY

What is the NB’s monetary policy instruments?
How do the NB’s actions change the exchange rate?
How do the NB’s actions influence the inflation rate?

© 2012 Pearson Addison-Wesley
Q1. The NB mandate is to achieve ________.
A full employment at all costs
B low inflation at all costs
C maximum employment and stable prices
D a near-zero interest rate

© 2012 Pearson Addison-Wesley
Q3: The NB’s monetary policy instrument is ______.
A the monetary base
B the NB reserves
C the quantity of money
D the NB funds rate

© 2012 Pearson Addison-Wesley
Q5: The first link in the chain of events triggered by a rise in the state funds rate is __________.
A a rise in other short-term nominal interest rates
B a fall in consumption expenditure
C a fall in net exports
D a rise in the long-term real interest rate

© 2012 Pearson Addison-Wesley
Q6: To fight recession, the NB _______.
A buys securities in the open market to lower the state funds rate
B sells securities in the open market to lower the state funds rate
C buys securities in the open market to raise the state funds rate
D sells securities in the open market to raise the state funds rate

© 2012 Pearson Addison-Wesley
Q7: If in fighting recession, the NB hits the gas pedal too hard, it might push the economy ______.
A from recession to an inflation-free boom
B into stagflation
C from recession to inflation
D into depression

© 2012 Pearson Addison-Wesley
Q8: A key element that put banks under damage during the financial crisis of 2008-2009 was _____.
A an asset price bubble
B an asset price bust
C a currency drain
D a loss of cash reserves