Answered: 2. When a central bank wants to pursue…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 1PA

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2. When a central bank wants to pursue a contractionary monetary policy, it should

	a.	increase the required reserve ratio.
	b.	pump excess reserves into the banking system.
	c.	decrease the required reserve ratio.
	d.	decrease the currency ratio.

When the link between M1, M2, and inflation broke down in the 1980s, many economists argued that the best policy approach was to have an explicit inflation target. The biggest problem with an explicit inflation target is

	a.	that it requires perfect foresight on the part of the Federal Reserve because of the lagged impact of monetary policy instruments.
	b.	determining which measure of inflation to use.
	c.	that it puts too much emphasis on stable prices over other possible goals for monetary policy.
	d.	determining what that target should be

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