The Bank of Canada's monetary policy can target inflation:
A) because the exchange rate is flexible.
B) because the government budget is in surplus.
C) because the economy operates at potential output.
D) because the US Federal Reserve sets an inflation target.

Question

Quizplus · Accepted Answer

The Bank of Canada can target inflation more effectively because of a flexible exchange rate, which allows the central bank to adjust monetary policy without having to maintain a specific exchange rate, thus focusing on controlling inflation.

The Bank of Canada's Monetary Policy Can Target Inflation