A Stable Monetary Policy Is Essential for the Control of Inflation, Efficient Allocation of Investment, and Achievement of Economic Stability.
1. "Money is to an economy what language is to communication." What does this statement mean?
2. How do economists measure inflation? What is the major cause of inflation? Cite evidence to support your answer.
3. If a country has a high and volatile rate of inflation, will domestic investors find this environment attractive? Will foreign investors find it attractive? How will the country's investment rate be affected?
4. Shifts in monetary policy generally exert an impact on the level of economic activity with time lags that are variable and often lengthy. How will these time lags influence the ability of monetary policy-makers to follow a course that will minimize economic instability? Explain your response.