Suppose that a country's central bank has price stability as the primary objective. Describe how the central bank conducts monetary policy in times of rising energy prices, if (a)only focuses on price...

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Suppose that a country's central bank has price stability as the primary objective. Describe how the central bank conducts monetary policy in times of rising energy prices, if (a)only focuses on price stability and (b) also cares about the development in unemployment.


Answered Same DayDec 23, 2021

Answer To: Suppose that a country's central bank has price stability as the primary objective. Describe how the...

Robert answered on Dec 23 2021
114 Votes
Maintaining price stability has been a major concern for most of the economies. Rising
price level
is causing inflation. Inflation has a lot of drawbacks:
i) It erodes the value of money
ii) It redistributes income between groups
iii) Causes unemployment
iv) Discourages investment
To address these issues, the central bank specifies price stability as its main objective.
a) If the central bank only focuses on price stability, then it would increase the
interest rate to maintain price...
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