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.
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.
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.
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.
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.