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.

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