Question

1. Which of the following is not a goal of monetary policy?

A. High employment B. Economic growth C. Low inflation D. An unemployment rate as close to zero as possible

2. What is the primary long run goal of monetary policy?

A. Price stability B. Economic growth C. Low unemployment D. A stable dollar

3. The most important characteristic of a policy(operating) instrument Is that it

A. Is observable and measurable B. Is controllable C. Has a predictable impact on goals D. Is a nominal anchor

4.Which of the following is a policy( operating) instrument?

A. Open market operations B. Fed funds rate C. Inflation D. Discount rate

5. The purpose of the Taylor rule was to

A. Prevent inflation B. Forecast interest rates C. Establish the Fed Funds Rate D. Guide which long run goal to use

Answer 1

1.  D. An unemployment rate as close to zero as possible

reason- Unemployment rate close to zero is not possible because of frictional unemployment and structural unemployment.

Unemployment rate will be equal to natural rate of unemployment.

Answer 2. a. A price stability

reason- Monetary policy primary goal is to maintain the price level or inflation in the market.

Answer 3. C. Has a predictable impact on goals

reason- The most important characteristic is of a policy instrument is to be able to predict the impact on goals.

Answer 4. a. open market operations

reason- Open market operations is a policy instrument that helps control money supply.

Answer 5. forecast interest rate

reason- The purpose of taylor rule is to forecast interest rate.

it was invented by John Taylor in 1992.