Suppose that inflation is at the target rate and output has fallen substantially below potential output. A central bank with a primary objective of price stability should ________
A) do nothing, because inflation cannot rise when unemployment is high
B) ease monetary policy, to avoid a decrease in the inflation rate
C) do nothing, because stabilizing economic activity is not a primary objective
D) ease monetary policy, because avoiding high unemployment is more important than avoiding high inflation
E) none of the above
B
You might also like to view...
In nations where conventional taxes are difficult to collect, the inflation tax is ________, which tends to ________ the inflation rates of those nations
A) also difficult to collect, aggravate B) also difficult to collect, hold down C) a realistic alternative, aggravate D) a realistic alternative, hold down
The term "flexible exchange rates" refers to
A) a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. B) the increase in the exchange value of one nation's currency in terms of an other nation. C) a nation in which households, firms, and governments buy and sell national currencies. D) the decrease in the exchange value of one nation's currency in terms of another nation.
A demand curve:
A. shows the relationship between price and quantity supplied. B. indicates the quantity demanded at each price in a series of prices. C. shows the relationship between income and spending. D. graphs as an upsloping line.
Purchasing power parity:
A. allows us to compare the cost of living across different locations. B. is the theory that purchasing power in different countries should be the same when stated in local currencies. C. almost always holds in reality. D. All of these statements are true.