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According to the Statistics Canada website, inflation, as measured by the change in the consumer price index, was 5.7% in February 2022, the highest inflation rate since August 1991.
a. Briefly define the consumer price index.
b. What (generic) advice would you give to the Governor of the Bank of Canada?
c. Should the Governor follow your advice, how would the Bank of Canada actually do it?
d. Explain the mechanism (or the path) through which your policy advice would affect the inflation rate.
e. Use an AD-AS diagram to illustrate your explanation. (Do not forget to briefly describe your diagram for a diagram without explanation means nothing.)
f. How long do you expect for the effects to be felt?
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