A Central Bank Increases Its Inflation Target When Real and Potential

question 13

Multiple Choice

A central bank increases its inflation target when real and potential GDP are equal if it

• A)wants to avoid a political business cycle.
• B)succumbs to political pressure to stimulate the economy.
• C)wants to raise the rate of inflation in the long run.
• D)is more concerned with long-run stability than short-run gain.
• E)wants to lower the rate of inflation in the long run.

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Definitions:

National Income

The total value of all goods and services produced by a country's economy over a specific period, often used as a measure of the economic health of a nation.

Government Expenditures

The total amount spent by the government in a particular period, including spending on goods, services, and transfer payments.

Net Exports

The difference between a country's total exports of goods and services and its total imports, which can be either positive (surplus) or negative (deficit).

GPI

An alternative measure to GDP that accounts for the economic well-being of a country by incorporating environmental and social factors.