Question: True or false? Explain your answer. (a) If inflation increases across developed economies, Central Banks of these countries will respond by increasing their target

True or false? Explain your answer. (a) "If inflation increases across developed economies, Central Banks of these countries will respond by increasing their target interest rates. This in turn will make market rates of returns on investment more attractive and will lead to an increase in investment and aggregate demand in the economy, pushing the price level even higher. This vicious circle is one of the reasons why monetary policy is ineffective in the current economic environment." (2 marks) I (b) "The one and only goal of monetary policy in Australia is full employment of the labour force." (1 mark)

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