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ECON 1010 Study Guide - Final Guide: Core Inflation, Pearson Education, Canada Act 1982Exam


Department
Economics
Course Code
ECON 1010
Professor
Edward Haltrecht
Study Guide
Final

This preview shows pages 1-3. to view the full 29 pages of the document.
Parkin/Bade, Economics: Canada in the Global Environment, 8e
Copyright © 2013 Pearson Canada Inc. 1177
Chapter 30 Monetary Policy
30.1 Monetary Policy Objectives and Framework
1) Core inflation is the percentage change in
A) the Consumer Price Index including the eight most volatile prices.
B) an inflation rate that ranges between 1 percent and 3 percent annually.
C) the Consumer Price Index excluding the eight most volatile prices.
D) the average of the 8 most volatile prices in the Consumer Price Index.
E) the target midpoint inflation rate of 2 percent per year.
Answer: C
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework
2) How is responsibility for monetary policy set forth in Canada?
A) The Canadian Government administers monetary policy through the office of the Minister of
Finance.
B) The Bank of Canada administers monetary policy as directed by the Minister of Finance.
C) The Bank of Canada Act places responsibility for the conduct of monetary policy on the
Bank's Governing Council.
D) The Prime Minister bears ultimate responsibility for monetary policy.
E) Both B and D.
Answer: C
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework
3) Which of the following benefits flow from the application of an inflation-control target?
A) If actual inflation exceeds the target range, the Bank of Canada can induce a recession to
correct the matter.
B) The monetary authorities can change the target range whenever they feel it is appropriate.
C) People can make decisions with an understanding that inflation rates will remain relatively
low.
D) Financial market traders have a clearer understanding of the Bank of Canada's intentions.
E) Both C and D.
Answer: E
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Parkin/Bade, Economics: Canada in the Global Environment, 8e
Copyright © 2013 Pearson Canada Inc. 1178
4) Which of the following issues is a concern that critics express about the use of an inflation-
control target?
A) The policy control rests in the hands of civil servants rather than in the hands of elected
officials.
B) The policy control rests in the hands of elected officials rather than in the hands of civil
servants.
C) It encourages a focus on real GDP growth at the expense of employment and of inflation.
D) It encourages a focus on inflation at the expense of employment and real GDP growth.
E) Monetary policy tends to be sensitive to the state of employment while focusing on inflation
control targets.
Answer: D
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework
5) Who are the members of the Bank of Canada's Governing Council?
A) The Ministers of Finance from each province as well as the Federal Minister of Finance.
B) The Prime Minister, the Minister of Finance, and the Bank's Governor.
C) The Minister of Finance, the Governor, and four Deputy Governors.
D) The Bank's Governor, Senior Deputy Governor, and four Deputy governors who are
appointed by the Prime Minister to represent the public interest.
E) The Bank's Governor, Senior Deputy Governor, and four Deputy Governors.
Answer: E
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework
6) How is consultation between the Bank of Canada and the Government of Canada on monetary
policy arranged?
A) Consultations are arranged at the discretion of the Minister of Finance.
B) No consultation is required or needed.
C) The Bank of Canada Act requires regular consultations between the Governor and the
Minister of Finance.
D) Consultations are arranged at the discretion of the Governor of the Bank of Canada.
E) Consultations are arranged through the Parliamentary Committee on Finance.
Answer: C
Diff: 1 Type: MC
Topic: Monetary Policy Objective and Framework

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Parkin/Bade, Economics: Canada in the Global Environment, 8e
Copyright © 2013 Pearson Canada Inc. 1179
7) Why does the Bank of Canada pay close attention to the core inflation rate in addition to the
overall CPI inflation rate?
A) The core rate is more volatile and therefore a better predictor of trend inflation.
B) The core rate includes taxes, while the overall CPI rate does not.
C) The core rate has a lower average value and therefore makes the Bank look better.
D) The core rate is less volatile and a better predictor of future CPI inflation.
E) The core rate excludes eight volatile prices and is therefore more likely to stay within the
target band.
Answer: D
Type: MC
Topic: Monetary Policy Objective and Framework
Source: Study Guide
8) One criticism of the Bank of Canada's focus on an inflation control target is that
A) if inflation falls below the target range a recession will result.
B) if inflation edges above the target range, the Bank decreases aggregate demand and could
create a recession.
C) the Bank pays too much attention to unemployment and real GDP growth and not enough to
inflation control.
D) it makes setting expectations of inflation difficult.
E) the Bank rarely achieves its target.
Answer: B
Type: MC
Topic: Monetary Policy Objective and Framework
Source: Study Guide
9) The objective of the Bank of Canada's monetary policy is
A) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a
year, and long-term real GDP growth above 4 percent a year.
B) to control the quantity of money and interest rates to avoid inflation and when possible
prevent excessive swings in real GDP growth and unemployment.
C) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a
year, and long-term interest rates below 4 percent a year.
D) to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent
a year, and the exchange rate fluctuating by less than 3 percent a year.
E) to keep the overnight loans rate below 2 percent a year and the unemployment rate at its
natural rate.
Answer: B
Type: MC
Topic: Monetary Policy Objective and Framework
Source: MyEconLab
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