Which of the following statements about the two types of mandates for monetary p

Question

Which of the following statements about the two types of mandates for monetary policy is false?

A. Dual mandates and hierarchical mandates are not very different if maximum employment is defined as the natural rate of employment because there is no inconsistency between achieving price stability in the long run and the natural rate of employment.

B. Concerns that a dual mandate might lead to overly contractionary policy is a key reason why central bankers often favor hierarchical mandates.

C. Hierarchical mandates are a problem if they lead to a central bank that focuses solely on inflation control, even in the short run, and so undertakes policies that lead to large output fluctuations.

D. Both dual mandates and hierarchical mandates are sufficient as long as they operate to make price stability the primary goal in the long run, but not the short run.

Explanation / Answer

The correct answer is option (B). Concerns that a dual mandate might lead to overly contractionary policy is a key reason why central bankers often favor hierarchical mandates.

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