Why is price stability the Bank of Canada’s ultimate monetary policy goal? What problems can high...
Why is price stability the Bank of Canada’s ultimate monetary policy goal? What problems can high inflation rates cause for the economy?
Homework Answers
The Bank of Canada, places emphasis on price stability because :
- Purchasing power of the Canadian Dollar is preserved
- Helps in avoiding inflation or deflation
- Relative prices of goods and services are kept in check
- Prolonged economic growth is also preserved
Problems caused by high inflation on the economy :
- Consumers tend to be uncertain. This hampers investments.
- Price levels are higher during inflation, where a country would import more, causing net exports to decrease
- Real GDP growth rate declines
- Inflations often lead to recessions in the economy
- Income levels often decline owing to stagnant wage growth.
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