If We Have a Loss Function That Is More Heavily

question 41

Multiple Choice

If we have a loss function that is more heavily weighted against high unemployment than against deviations from an inflation target, then

• A)a recession will result if the targeted rate of inflation is below the expected inflation rate
• B)there is an inherent incentive to raise inflation in order to lower unemployment
• C)there is no good incentive to actually stick to the inflation target
• D)real GDP targeting is preferable to nominal GDP targeting
• E)all of the above

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