Consider the Following Statement About Inflation Targeting: a Policy of Inflation

question 106

Multiple Choice

Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy,just like the automatic fiscal stabilizers.Choose the most appropriate response to this statement.The statement is

• A)true,because an inflationary gap is met with a contractionary monetary policy.
• B)true,because a recessionary gap is met with an expansionary monetary policy.
• C)not true,because inflation targeting requires active policy decisions by the Bank of Canada,whereas automatic fiscal stabilizers need no policy implementation.
• D)not true,because inflation targeting automatically maintains inflation within the target range,whereas fiscal stabilizers require government policy decisions.
• E)true,because inflation targeting and fiscal stabilizers are essentially the same policy tool.

---

Definitions:

Medium-sized Firms

Companies that occupy the middle ground in terms of annual revenues and employee numbers, larger than small businesses but smaller than large corporations.

Oligopolists

Firms operating in a market structure characterized by a small number of companies that have significant control over market prices and competition.

Monopolistic Competitors

Firms operating in a market structure where many companies sell products that are similar but not identical, allowing for competition on aspects other than just price.

Control Over Prices

The ability of a firm or government to dictate or influence the prices of goods and services in the market, often through regulation or monopoly power.