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Fact 30.1.1 Inflation Control Target Renewal
The 2011 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 2016.
Source: Bank of Canada, November 2011
-Refer to Fact 30.1.1. Choose the statement that is incorrect.
A)It is important to renew the agreement because the target provides an anchor for low inflation expectations.
B)It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short-run output-inflation tradeoff as favourable as possible.
C)It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year.
D)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise.
E)Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer.

Question

Quizplus · Accepted Answer

The statement "with the agreement the inflation rate will always remain between 1 and 3 percent a year" is incorrect. While the target is to keep inflation within a range of 1-3%, there may be fluctuations above or below this range due to various economic factors.

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