TRUE/FALSE/UNCERTAIN QUESTIONS

Indicate whether the following statement is true, false or uncertain. You do not have to justify your answer.

1. High nominal interest rates indicate that monetary policy is tight.

2. Unexpected inflation is attractive to the government if it has outstanding nominal debt.

3. John Maynard Keynes focused on the lack of perceived investment opportunities as a major cause of lack of aggregate demand.

4. Monetary policy operates through many channels, and therefore it is very difficult to determine which channel is more important.

5. Aggregate output is demand determined both in the short-run and long-run.

6. A permanent negative supply shock is worse for output and inflation than a temporary negative demand shock.

7. The money supply can grow faster without inflationary consequences when the economy is growing faster than when it is growing slower or not at all.

8. It is much more difficult for the central bank to deal with supply-side inflation than demand-side inflation.

9. In the quantity theory of money, the inflation rate reflects the rate of nominal money growth.

10. "The Federal reserve is a lender not a spender."

11. For monetary policy to be successful, it is important that the expectations of the market are aligned with those of the central bank.

12. The Canadian government can reduce national debt by an interest and an inflation policy which keeps the rate of inflation above the rate of interest.

13. The volume of seigniorage revenue the government collects is increasing in the inflation rate.

14. Monetary policy impacts on the economy with a two to three year lag, which is much longer than the fiscal lag.

15. The COVID-19 pandemic can easily be described as an aggregate demand shock that has generated a lot of price and inflation uncertainty.

16. If the overnight interest rate is at zero, the Bank of Canada can no longer implement effective monetary policy to help the economy.

17. "The costs of financing investment are related only to interest rates; therefore, the only way that monetary policy can affect investment spending is though its effects on interest rates."

18. When the Bank of Canada increases the money supply and decreases interest rates, real output (real economic activity) rises first and then the price level rises.

19. "The more credible the policymakers who pursue an anti-inflation policy, the more successful that policy will be."

20. "Policymakers would never respond by stabilizing output in response to a temporary positive supply shock."