(c) The Bank of England has a target of keeping inflation at 2%. Central banks around the world that target inflation have similar targets. Why are central banks content to see prices rise instead of trying to lower prices? (d) Pne common argument against discretionary fiscal policy is: "Since the economy returns to equilibrium, we should not react to the fluctuations in the economy. If we do nothing, the economy will fix itself." Critically evaluate this argument.

(c) The Bank of England has a target of keeping inflation at 2%. Central banks around the world that target inflation have similar targets. Why are central banks content to see prices rise instead of trying to lower prices? (d) Pne common argument against discretionary fiscal policy is: "Since the economy returns to equilibrium, we should not react to the fluctuations in the economy. If we do nothing, the economy will fix itself." Critically evaluate this argument.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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