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

question 75

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 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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Definitions:

Equity Method

An accounting technique used to record an investor's earnings proportional to their stake in an associates company.

Cost Method

An accounting technique used to value investments, where the investment is recorded at purchase cost without recognizing subsequent changes in market value.

Consolidated Income Statement

A financial statement that aggregates the financial performance of a company and its subsidiaries.

Sales Revenue

The total amount of money earned from goods and services sold before any expenses are subtracted.