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

question 89

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

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Definitions:

Status Generalization

A process through which differences in members’ status characteristics lead to different performance expectations and, hence, affect patterns of interaction in groups; the tendency for a member’s status inside a group to reflect his or her status outside that group.

Self-fulfilling Prophecy

A prediction that directly or indirectly causes itself to become true due to positive feedback between belief and behavior.

Diffuse Status Generalization

The process by which individuals' status characteristics in one domain influence expectations and interactions in unrelated domains.

Jury Foreman

The member of a jury selected to lead the group, speak on its behalf, and often deliver the verdict to the court.