Due to the lack of timely data for the price level and economic growth, the Bank of Canada's strategy ________.
A) targets the exchange rate, since the Bank of Canada can control this variable
B) targets the price of gold, since it is closely related to economic activity
C) uses an intermediate target, such as an interest rate
D) stabilizes the consumer price index, since the Bank of Canada can control the CPI

Question

Quizplus · Accepted Answer

The Bank of Canada uses an intermediate target, such as an interest rate, to achieve their ultimate goal of controlling the inflation rate. They adjust the interest rate in order to influence borrowing and spending by households and businesses, which in turn affects the level of economic activity and eventually the price level. This allows them to achieve their goal of maintaining price stability even in the absence of timely data for the price level and economic growth. Targeting the exchange rate (A) may not always be effective due to the influence of global factors, and targeting the price of gold (B) is not a common practice for central banks. Stabilizing the consumer price index (D) is the ultimate goal, but it cannot be directly controlled by the Bank of Canada.

Due to the Lack of Timely Data for the Price