The Bank of Canada's Response to Changes in Inflation Is

question 52

Multiple Choice

The Bank of Canada's response to changes in inflation is more complex than identified in the ADI-IA model because

• A) the monetary policy rule can change over time.
• B) we cannot calculate the monetary policy rule.
• C) the self-correcting mechanism is only effective for recessionary gaps.
• D) the self-correcting mechanism is only effective for expansionary gaps.
• E) the Bank of Canada responds to expected future inflation as well as current inflation.

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Definitions:

Residual Dividend Theory

A policy whereby a company pays dividends to shareholders from leftover earnings after all operational costs and capital investment projects are covered.

Operating Income (EBIT)

Refers to an entity's earnings before interest and taxes, calculated by subtracting operating expenses from gross income, indicating the profitability from regular operations.

Payout Ratio

The proportion of earnings a company pays to its shareholders in the form of dividends.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, representing the percentage of tax applied to your income for each tax bracket in which you qualify.