. We saw in Chapter 18 that many central banks have turned to a policy framework of inflation targeting. Discuss if this would be effective in a country experiencing deflation.
What will be an ideal response?
For a country experiencing deflation, the central bank would obviously set a target for at least a zero rate of inflation and possibly a one or two percent positive rate. By setting this target the central bank would expand the money supply enough and hopefully convince people that it will act to bring about the target rate so that people begin to alter their expectations for the future and build these target rates into their decisions.
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If prices are held above the equilibrium price:
A) social surplus is maximized. B) all firms incur losses. C) there exists a surplus in the market. D) there exists a shortage in the market.
The difference between the yield on 3-month Treasury bills and 10-year Treasury notes is largest typically during:
A) recessions B) expansions C) periods of high inflation D) when the yield curve is inverted
Which of the following is NOT a true statement regarding free trade?
A) Free trade promotes specialization and efficient production. B) Free trade generally reduces the domestic prices of imports. C) Free trade may stimulate economic growth through export sales. D) Every individual in a country gains short-term benefits from free trade.
Which of the following is similar for oligopoly and monopolistic competition?
A. Both have low concentration ratios. B. Both make independent production decisions. C. Both have market power. D. Both have many firms.