The central bank of the country Oakville is hosting its annual economic policy s

Question

The central bank of the country Oakville is hosting its annual economic policy symposium with monetary policy as the theme. Several bankers and professional economists are in attendance. Dorah Baker, a professor at the University of Oakville, is of the opinion that monetary policy should target the rate of growth of money supply. This, she claims, would increase economic stability. Jack Snyder, a delegate attending the conference, does not agree. He thinks that monetary policy is highly effective in controlling inflation and so the central bank should continue to follow inflation-targeting. In fact, Jack also believes that the central bank should bring inflation down from the current level of four percent to as close to zero as possible.

Which of the following, if true, would suggest that monetary policy may not be very effective in substantially reducing inflation from the current level of four percent?

Explanation / Answer

THe correct statement is option (D). Although the current level of inflation is considered to be high, the economy has also been growing at an impressive pace. The statement by JAck is true to follow for the economy's upliftment. The role of the centrla bank to reduce inflation could take place if the rate of interest is reduced to few percentage. It would decrease the excessive spendings at the time of inflation. It would encourage the firms to raise the wages of labors for increased effective outputs.

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