QUESTION 1

One reason most central bankers do not set an inflation target of zero is:

a-		it is almost impossible to achieve.
b-		they believe it would cause price volatility.
c-		the central bank could hit the zero nominal-interest-rate bound.
d-		none of the answers given is correct.

QUESTION 2

All of the following could represent the transmission of monetary policy, except:

		a- income tax rates changing.
		b- households altering their spending on durable goods.
		c- net exports changing.
		d- firms altering their growth plans.

QUESTION 3

Bonds cannot have yields less than the effective lower bound because:

		a- the U.S. treasury guarantees all bonds to have a positive yield.
		b- the banking technology does not exist to deal with negative yields.
		c- people can always hold cash.
		d- all of the answers given are correct.

QUESTION 4

The interest-rate channel of monetary policy transmission appears to be:

		a- weak because the investment component of total spending is very sensitive to interest rates.
		b- strong because the investment component of total spending isn't very sensitive to interest rates.
		c- weak because the investment component of total spending isn't very sensitive to interest rates.
		d- strong because the investment component of total spending is very sensitive to interest rates.

QUESTION 5

Firms have a harder time getting loans during periods of deflation because:

		a- deflation aggravates information problems in ways dissimilar to inflation.
		b- for a firm seeking a loan, deflation increases the real amount of their liabilities without increasing the real value of their assets.
		c- deflation decreases the net worth of firms.
		d- all of the answers given are correct.