Suppose Output Is at Its Potential Level and Then There

question 20

Multiple Choice

Suppose output is at its potential level and then there is a sudden increase in food and energy prices.This increase

• A)makes inflation targeting easier because it makes these problems less relevant.
• B)makes inflation targeting harder because these are closely related to excess demand in the economy.
• C)would be unlikely to lead to an immediate policy response because it would not appear in "core" inflation.
• D)would be offset by a decline in the Canadian dollar,making these price increases irrelevant.
• E)is closely related to changes in core inflation so the Bank of Canada uses these for targeting inflation.

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Definitions:

Dividend Growth Rate

The dividend growth rate is the annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time.

Annual Dividend

The total amount of dividend payments made to shareholders in a year, reflecting the company’s profitability and its distribution policy.

Coupon Rate

The annual interest payment on a bond, denoted as a percentage of its face value.

After-Tax Cost of Debt

The interest expense on debt adjusted for taxes, reflecting the actual cost to the company.