Consider a country where the central bank has full discretion over monetary policy, with no legally mandated target for the rate of price increases. Furthermore, the value of its currency is allowed to fluctuate freely in foreign exchange markets. Which of the following scenarios is the most likely long-term outcome of this institutional arrangement, and why?

Evaluating a Policy to Anchor Inflation

Analyzing Inflationary Pressures in a Hypothetical Economy

The Mechanism of Inflationary Drift

True or False: In an economy with a freely floating currency and no explicit price stability mandate for its monetary authority, the persistent upward trend in the general price level is primarily caused by the inherent instability of the flexible exchange rate system itself.

Match each description of a country's monetary policy framework to its most probable long-term outcome for the inflation rate.

Comparing Monetary Regimes and Inflation Outcomes

In an economic system with a freely floating currency and no explicit price stability mandate, the persistent tendency for the general price level to rise over time is primarily due to the absence of a strong ________ to discipline monetary policy.

A government operates in an economic environment with a freely floating currency and no explicit, binding commitment to a specific rate of price level increase. Arrange the following events into the most likely causal sequence that leads to a persistent rise in the general price level.

Political Pressures and Monetary Policy Outcomes