Use the Information Below to Answer the Following Questions

question 38

Multiple Choice

Use the information below to answer the following questions.
Fact 14.1.1 Inflation Control Target Renewal
The 2016 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 20 Source: Bank of Canada, November 2016
-Refer to Fact 14.1.1.Choose the statement that is incorrect.

• A)It is important to renew the agreement because the target provides an anchor for low inflation expectations.
• B)It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short- run output- inflation tradeoff as favourable as possible.
• C)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer.
• D)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise.
• E)It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year.

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Definitions:

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures, taking into account both current income and capital gains or losses.

Zero-coupon Bonds

Debt securities that are issued at a discount to their face value and do not pay interest during their life but are redeemed at full face value at maturity.

Yield To Maturity

The total return expected on a bond if the bond is held until its maturity date, incorporating both interest payments and the capital gain or loss.

Discount

The reduction applied to the nominal or face value of something, typically used in the context of bonds or selling goods and services at below their listed prices.