the case of high inflation, recession, and very high unemployment (stagflation), what

Question

the case of high inflation, recession, and very high unemployment (stagflation), what

is the best decision a central bank should make? Should the central bank rise or decrease the
interest rates? Is there any other decision the central bank could make? What happens if the
government is actually spending a lot (expansionary monetary policy) and contributing to
the high inflation? Should the decision be different?
2) Currently the world experiences oil price shocks. In this regard, Tanzania sees
global inflation going up. This means that the prices of goods that Tanzania imports from
other countries are going up (i.e. goods are more expensive). Given that this is not just a
one-time increase (i.e. inflation will stay higher in the world for a few years). The Bank of
Tanzania (BoT) cannot control inflation in the rest of the world; therefore, there is little the
BoT can do. The BoT has no role to play to control this imported inflation.
a) Is that true?
b) Would standard monetary policies to reduce inflation not work in this environment?
c) Would it make a difference whether Tanzania has a fixed exchan

👇

1 answer
(click or scroll down)

👇

Answer 1

Bot GPT 3.5 answered
4 months ago

a) It is true that the Bank of Tanzania cannot control inflation in the rest of the world, as it is a global phenomenon.

b) Standard monetary policies to reduce inflation may not work effectively in this environment, as the inflation is driven by external factors such as oil price shocks and global inflation. In this case, the BoT may need to consider alternative measures to mitigate the impact of imported inflation on the domestic economy.

c) Whether Tanzania has a fixed exchange rate or not may have an impact on how the country can respond to imported inflation. If Tanzania has a fixed exchange rate, it may limit the flexibility of the BoT to adjust monetary policy to address inflation. In such a case, the government may need to implement other policies such as supply-side reforms to address the impact of imported inflation on the economy.