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.