Suppose the Bank of Canada's Target for Inflation Is 2

question 27

Multiple Choice

Suppose the Bank of Canada's target for inflation is 2 percent.If deviation of output from full-employment output is 1 percent,and the rate of inflation over the previous four quarters is 4 percent,what overnight interest rate the Bank should choose if it follows the Taylor rule?

• A)5.7 percent
• B)4 percent
• C)7.5 percent
• D)3 percent

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Definitions:

Annual Sales

The total revenue a company generates from its operations over the course of a year.

Cash Expenses

Cash expenses are expenditures that a business or individual pays out in cash during a specified period, as opposed to non-cash expenses such as depreciation.

Planetary Gearset

A planetary gearset is a compact and efficient gear system used in transmissions, consisting of one central "sun" gear, multiple "planet" gears that orbit the sun gear, and a "ring" gear encompassing the planet gears.