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Fact 14.1.1 Inflation Control Target Renewal
The 2016 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 20 Source: Bank of Canada, November 2016
-Refer to Fact 14.1.1.Choose the statement that is incorrect.
A)It is important to renew the agreement because the target provides an anchor for low inflation expectations.
B)It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short- run output- inflation tradeoff as favourable as possible.
C)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer.
D)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise.
E)It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year.

Question

Quizplus · Accepted Answer

The statement "with the agreement the inflation rate will always remain between 1 and 3 percent a year" is incorrect. While the target is to keep inflation within this range, it is not a guarantee that it will always remain within it. The target is a goal and not a fixed limit.

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