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Evaluating a Proposed Change to a Central Bank's Price Stability Goal
An economy has a long-standing central bank objective of maintaining annual price increases at 2%. For the past several years, the economy has been in a severe slump. To combat this, the central bank has already cut its main policy interest rate to 0%, but economic activity remains weak and there are fears of a prolonged period of falling prices. Some economists propose that the central bank should permanently change its long-term objective for price increases to 4%. Analyze the primary argument in favor of this proposal. Specifically, explain how permanently aiming for a higher rate of price increases could help the central bank better manage future economic slumps.
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Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
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Evaluating a Proposed Change to a Central Bank's Price Stability Goal
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