There can be strong pressure on the Bank of Canada to validate a large negative supply shock. The motive behind this pressure is
A) that there is the danger of initiating a wage- price spiral.
B) that wages often fall only very slowly, so the adjustment back to full employment can take a very long time.
C) to reduce unemployment below the NAIRU.
D) to keep a "healthy" amount of inflation in the economy.
E) that the Bank of Canada must be seen to be pursuing a restrictive monetary policy, in order to stop any expectational inflation.
Correct Answer:
Verified
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