MGEB06H3 Lecture Notes - Lecture 1: Money Supply, Inflation Targeting
Document Summary
A pair of economics experts doctors abc and xyz, are having a debate about the usefulness of inflation targeting, that is using monetary policy to keep the inflation rate between 2 and 3 percent per year. Dr. xyz claims that since our society wishes to keep fluctuations in unemployment to a minimum inflation targeting is only useful when the economy is hit by a money market shock. Dr. abc asks you to explain whether dr. xyz"s claim is true, false or uncertain. Explain your answer with the aid of one well labeled is-lm diagram and one well labeled as- Hint: the bulk of your grades are associated with the quality of your diagrams and explanations rather than a guess. Over the past few years the nominal money supply has been rising by 5% per year. Suppose this money supply growth rate is expected to continue in the future.