Which of the following benefits flow from the application of an inflation- control target?
A)The monetary authorities can change the target range whenever they feel it is appropriate.
B)If actual inflation exceeds the target range, the Bank of Canada can induce a recession to correct the matter.
C)People can make decisions with an understanding that inflation rates will remain relatively low.
D)Financial market traders have a clearer understanding of the Bank of Canada's intentions.
E)Both C and D

Question

Quizplus · Accepted Answer

A clear inflation-control target allows people to make decisions with the expectation of relatively low inflation rates, which promotes confidence and stability in the economy. Financial market traders also benefit from a clearer understanding of the central bank's intentions, allowing for more informed investment decisions. However, the monetary authorities cannot simply change the target range whenever they feel it is appropriate, as doing so would undermine the credibility of the target and fail to provide the stability that inflation control is supposed to achieve. Additionally, inducing a recession to correct inflation exceeds the target range would be an extreme measure and is not a typical or desirable method of controlling inflation.

Which of the Following Benefits Flow from the Application of an Inflation-