Suppose the Bank of Canada Has a Target Inflation Rate

question 67

Multiple Choice

Suppose the Bank of Canada has a target inflation rate of 3%,always hits its target,and the inflation rate has been 3% for several years.Furthermore,assume Amazon sets the price of its Kindle Fire at $140 in 2012 and wants to keep the real price of the Kindle constant in order to maximize profits.Now suppose that the Bank of Canada announces on January 1,2013 that it will decrease its target rate for inflation to 1%.If Amazon has adaptive expectations,it will set its price for the Kindle in 2013 at

• A) $137.20.
• B) $140.00.
• C) $141.40.
• D) $144.20.

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Definitions:

Payments

Transactions or transfers of money or its equivalent from one party to another as a form of exchange for goods, services, or to fulfill a legal obligation.

Weighted Average Delay

A measure that calculates the average delay in a system, project, or process, taking into account the weight of each component's delay.

Collection Delay

The time period between when a cheque is deposited and when the funds are available for use.

Average Amount

The sum of a set of values divided by the number of values, often used to find a central value or typical amount in a dataset.