One Reason for Having a Monetary Policy Framework Is

question 85

Multiple Choice

One reason for having a monetary policy framework is:

• A) it makes clear what specific goals the central bankers are pursuing.
• B) it provides leeway for central bankers to change their goals without communicating the change and disrupting financial markets.
• C) it provides central bankers the secrecy needed to perform their jobs effectively.
• D) it can make goal setting vague enough so that the central bankers can always claim success.

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Definitions:

Political Compromises

Agreements reached by conflicting parties in which concessions are made by all involved to achieve a mutual solution.

Inflationary Gap

The situation where the total demand in an economy exceeds the total supply, leading to higher prices and inflation.

Equilibrium GDP

Equilibrium GDP is the level of output where aggregate demand matches aggregate supply, resulting in a stable economy without tendencies to change.

Multiplier

A factor that quantifies how an increase in spending leads to an increase in national income and output, typically greater than the initial amount spent.