An Example of How Inflation Targeting by the Bank of Canada

question 77

Multiple Choice

An example of how inflation targeting by the Bank of Canada helps to stabilize the economy is

• A)firms and households are aware of the announced inflation target and adjust their behaviour so as to maintain this level of actual inflation.
• B)when a recessionary gap reduces the rate of inflation (below the target level)the Bank of Canada will implement an expansionary monetary policy,which helps to close the gap.
• C)when the actual inflation rate falls below the targeted level of inflation,then commercial banks automatically increase deposit creation.
• D)when an output gap opens in the economy,the inflationary target adjusts to close the gap.
• E)when an output gap opens in the economy,the Bank of Canada chooses the inflation target appropriate for closing the gap.

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