Solution Manual for Money, Banking and Financial
Markets, 6th Edition Stephen Cecchetti and Kermit
Schoenholtz
Which of the following is an advantage to money targeting? - ANSWER There is an
immediate signal on the achievement of the target
If the relationship between the monetary aggregate and the goal variable is weak,
then - ANSWER monetary aggregate targeting will not work
Which of the following is NOT an element of inflation targeting? - ANSWER An
information-inclusive approach in which only monetary aggregates are used in
making decisions about monetary policy
The first country to adopt inflation targeting was - ANSWER New Zealand
The decision by inflation targeters to choose inflation targets _________ zero
reflects the concern of monetary policymakers that particularly __________ inflation
can have substantial negative effects on real economic activity. - ANSWER Above;
low
The type of monetary policy regime that the Federal Reserve has been following in
recent years can best be described as - ANSWER policy with an implicit nominal
anchor
The monetary policy strategy that provides the least accountability is - ANSWER
the implicit nominal anchor
Which of the following is a potential operating instrument for the central bank? -
ANSWER The monetary base
If the desired intermediate target is a monetary aggregate, then the preferred policy
instrument will be a(n) __________ variable like the _________. - ANSWER
reserve aggregate; monetary base
The immediate (two-day) exchange of one currency for another is a - ANSWER
spot transaction
When te value of the British pound changes from $1.50 to $1.25, then the pound has
_________ and the U.S. dollar has __________. - ANSWER depreciated;
appreciated
Everything else held constant, when a country's currency depreciates, its goods
abroad become _________ expensive while foreign goods in that country become
_________ expensive. - ANSWER less; more
, The _________ states that exchange rates between any two currencies will adjust to
relect changes in the price levels of the two countries. - ANSWER theory of
purchasing power parity
The theory of PPP (purchasing power parity) suggests that if one country's price falls
relative to another's, its currency should - ANSWER appreciate in the long run
According to PPP (purchasing power parity), the real exchange rate between two
countries will always equal _________. - ANSWER 1.0
As the relative expected return on dollar assets increases, foreigners will want to
hold more _________ assets and less _________ assets, everything else held
constant. - ANSWER U.S. dollar; foreign currency
Suppose that the Federal Reserve enacts expansionary fiscal policy. Everything else
held constant, this will cause the demand for U.S. assets to _________ and the U.S.
dollar to _________. - ANSWER increase; appreciate
The average number of times that a dollar is spent in buying the total amount of final
goods and services produced during a given time period is known as - ANSWER
velocity
Because the quantity theory of money tells us how much money is held for a given
amount of aggregate income, it is also a theory of - ANSWER the demand for
money
If the money supply is $500 and nominal income is $3,000, the velocity of money is -
ANSWER 6
The view that velocity is constant in the short run transforms the equation of
exchange into the quantity theory of money. According to the quantity theory of
money, when the money supply doubles - ANSWER nominal income doubles
Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of - ANSWER income
Keynes's theory of the demand for money implies that velocity is - ANSWER not
constant but fluctuates with movements in interest rates
If the government finances its spending by issuing debt to the public, the monetary
base will _________ and the money supply will _________. - ANSWER not
change; not change
Of the three motives for holding money suggested by Keynes, which did he belive to
be the most sensitive to interest rates? - ANSWER The speculative motive
In the simple Keynesian model, equilibrium aggregate output is determined by -
ANSWER aggregate demand
Markets, 6th Edition Stephen Cecchetti and Kermit
Schoenholtz
Which of the following is an advantage to money targeting? - ANSWER There is an
immediate signal on the achievement of the target
If the relationship between the monetary aggregate and the goal variable is weak,
then - ANSWER monetary aggregate targeting will not work
Which of the following is NOT an element of inflation targeting? - ANSWER An
information-inclusive approach in which only monetary aggregates are used in
making decisions about monetary policy
The first country to adopt inflation targeting was - ANSWER New Zealand
The decision by inflation targeters to choose inflation targets _________ zero
reflects the concern of monetary policymakers that particularly __________ inflation
can have substantial negative effects on real economic activity. - ANSWER Above;
low
The type of monetary policy regime that the Federal Reserve has been following in
recent years can best be described as - ANSWER policy with an implicit nominal
anchor
The monetary policy strategy that provides the least accountability is - ANSWER
the implicit nominal anchor
Which of the following is a potential operating instrument for the central bank? -
ANSWER The monetary base
If the desired intermediate target is a monetary aggregate, then the preferred policy
instrument will be a(n) __________ variable like the _________. - ANSWER
reserve aggregate; monetary base
The immediate (two-day) exchange of one currency for another is a - ANSWER
spot transaction
When te value of the British pound changes from $1.50 to $1.25, then the pound has
_________ and the U.S. dollar has __________. - ANSWER depreciated;
appreciated
Everything else held constant, when a country's currency depreciates, its goods
abroad become _________ expensive while foreign goods in that country become
_________ expensive. - ANSWER less; more
, The _________ states that exchange rates between any two currencies will adjust to
relect changes in the price levels of the two countries. - ANSWER theory of
purchasing power parity
The theory of PPP (purchasing power parity) suggests that if one country's price falls
relative to another's, its currency should - ANSWER appreciate in the long run
According to PPP (purchasing power parity), the real exchange rate between two
countries will always equal _________. - ANSWER 1.0
As the relative expected return on dollar assets increases, foreigners will want to
hold more _________ assets and less _________ assets, everything else held
constant. - ANSWER U.S. dollar; foreign currency
Suppose that the Federal Reserve enacts expansionary fiscal policy. Everything else
held constant, this will cause the demand for U.S. assets to _________ and the U.S.
dollar to _________. - ANSWER increase; appreciate
The average number of times that a dollar is spent in buying the total amount of final
goods and services produced during a given time period is known as - ANSWER
velocity
Because the quantity theory of money tells us how much money is held for a given
amount of aggregate income, it is also a theory of - ANSWER the demand for
money
If the money supply is $500 and nominal income is $3,000, the velocity of money is -
ANSWER 6
The view that velocity is constant in the short run transforms the equation of
exchange into the quantity theory of money. According to the quantity theory of
money, when the money supply doubles - ANSWER nominal income doubles
Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of - ANSWER income
Keynes's theory of the demand for money implies that velocity is - ANSWER not
constant but fluctuates with movements in interest rates
If the government finances its spending by issuing debt to the public, the monetary
base will _________ and the money supply will _________. - ANSWER not
change; not change
Of the three motives for holding money suggested by Keynes, which did he belive to
be the most sensitive to interest rates? - ANSWER The speculative motive
In the simple Keynesian model, equilibrium aggregate output is determined by -
ANSWER aggregate demand
