A central bank increases its inflation target when real and potential GDP are equal if it
A)wants to avoid a political business cycle.
B)succumbs to political pressure to stimulate the economy.
C)wants to raise the rate of inflation in the long run.
D)is more concerned with long-run stability than short-run gain.
E)wants to lower the rate of inflation in the long run.

Question

Quizplus · Accepted Answer

Increasing the inflation target when real and potential GDP are equal suggests the central bank is responding to political pressure to stimulate the economy, even if it risks higher inflation.

A Central Bank Increases Its Inflation Target When Real and Potential