can a government with an overly ambitious output target credibly commit to targeting
equilibrium output? If not then how can they solve the inflation bias problem
Solution
A government with an overly ambitious output will not be able to target credibly commit to
targeting equilibrium output since there are several external factors that might affect the target
output. A few of them are stated as follows:
1. Inflation
2. Unemployment
3. Equilibrium imbalance
4. Local Consumption level.
5. Deflation
These are some of the factors that might cause a difference in the output and also affect the
equilibrium output.
The inflation bias problem can only be solved when the output is in control and the exports are
increased, When the inflation increases the local consumption might come down as the value of
the products will increase. Hence the government will have to introduce certain monetary
measures to control the inflation and further will have to encourage exports where in foreign
currency might flow in. This will cause the inflation bias to be in the control and solve the same..
can a government with an overly ambitious output target credibly com.pdf
1. can a government with an overly ambitious output target credibly commit to targeting
equilibrium output? If not then how can they solve the inflation bias problem
Solution
A government with an overly ambitious output will not be able to target credibly commit to
targeting equilibrium output since there are several external factors that might affect the target
output. A few of them are stated as follows:
1. Inflation
2. Unemployment
3. Equilibrium imbalance
4. Local Consumption level.
5. Deflation
These are some of the factors that might cause a difference in the output and also affect the
equilibrium output.
The inflation bias problem can only be solved when the output is in control and the exports are
increased, When the inflation increases the local consumption might come down as the value of
the products will increase. Hence the government will have to introduce certain monetary
measures to control the inflation and further will have to encourage exports where in foreign
currency might flow in. This will cause the inflation bias to be in the control and solve the same.
