How is inflation targeting consistent with the "dual mandate" of price stability and maximum employment?
What will be an ideal response?
Inflation targeting is based on targets defined over a long-enough time period so that policy can respond flexibly to avoid high unemployment. Credible commitment to an inflation target, also, supports policy flexibility, so that expansionary policies may be pursued as needed, without causing an increase in expected inflation. Nothing is more crucial to maintaining low unemployment than effective management of expected inflation.
You might also like to view...
Refer to Figure 21-6. The loanable funds market is given in the figure above. If the current real interest rate is 5 percent, which of the following is true?
A) There is a surplus of loanable funds in the market. B) The loanable funds market is in equilibrium. C) The quantity of loanable funds being demanded in the market is less than $90 million. D) There is a shortage of loanable funds in the market.
When the existing firms in a monopolistically competitive industry earn above-normal profit:
a. new firms enter into the market, and entry continues until firms earn normal profit. b. new firms have no incentive to enter the market. c. new firms have an incentive to enter the market but are legally barred from doing so. d. they increase their production and lower the price level. e. their cost structure automatically changes, eliminating the additional profit.
The time span between the beginning of a downturn and the time by which hard data to indicate a downturn is made available is called:
a. the signal lag b. the implementation lag. c. the impact lag. d. the recognition lag.
Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that with trade,
a. Canada has a comparative advantage in the production of steel over other countries and Canada will import steel. b. Canada has a comparative advantage in the production of steel over other countries and Canada will export steel. c. other countries have a comparative advantage over Canada in the production of steel and Canada will import steel. d. other countries have a comparative advantage over Canada in the production of steel and Canada will export steel.