00:01
So here we're talking about the limits of monetary policy, right? the first thing we have is low inflation.
00:08
When inflation is too low, the bank of canada is worried, especially about the prospect of deflation.
00:13
And so we want to stimulate economy, right? we want to get inflation back up to the 2 % target.
00:19
We don't want to risk deflation.
00:22
And that means we need to lower rates.
00:25
But for low unemployment, we have the opposite concern.
00:32
Right we are worried about an excessive boom right low unemployment is maybe a sign of the economy overheating um we want to get the economy back to a sustainable stable level of unemployment we want to cool off the economy if we have you know unsustainably low unemployment and this means that we want to raise rates so we can't do both at the same time right these rates cannot go up and down at the same time.
01:05
So we have the pick, right? we have to pick whether we want to raise or lower.
01:08
We have to make one problem worse and one problem better.
01:11
We can't solve both problems.
01:14
This is the dilemma, right? the fact that monetary policy only has one tool, but occasionally there are multiple problems.
01:21
And if these problems are not well aligned, there's no guarantee that the monetary authority is going to be able to solve more than one problem.
01:29
So here, we just need two parts.
01:31
The complicated wording.
01:34
So the way the answer is written here, the bank of canada with a dilemma because an interest rate.
01:43
So the easiest way to tackle this is to think about which ones are wrong.
01:48
B and d are wrong because they start off with a interest rate rise to lower inflation.
02:04
But we want to raise inflation, right? the goal is to raise inflation, right? inflation is worryingly low.
02:13
We are not thinking about cutting inflation further...