3)Why does the Central Bank of Canada have a target for the rate of inflation? In particular, why is it important for the Central Bank to make inflation rates as predictable as possible?

4)a. Provide a definition for the natural rate of unemployment. How is your definition related to the potential output?

b. What are different unemployment categories that are included in the natural level of unemployment? Provide at least one example for each category.

Inflation and unemployment.

The Central Bank of Canada has a target for the rate of inflation because of various reasons which or the bitterness of the whole. In particular, why is it important for the Central Bank to make inflation rates as predictable as possible because of the intertwined roles the bank plays?

First, perhaps the government thought of it as a fundamentally promising idea. Secondly, the government was in the process of introducing a new goods and services tax, which would stimulate star inflation significantly. This was coming at a time when the government was also renegotiating the contracts it had with most of the unions in the federal civil service. The introduction of an inflation target might serve as a buffer, therefore, helping to temper wage demands. Third, it might have been a preemptive move. The Bank of Canada had started on a very high note. The bank sees the joint inflation-target agreement as something that enhances its operational independence.

The natural rate of unemployment is when an economy is in a steady state of full employment, which is the proportion of the workforce who are. This concept elucidates that the economic term "full employment" does not mean "zero unemployment" rather the hypothetical unemployment rate consistent with aggregate production being at the long-run level. In theory, more people and businesses will then buy and invest. Demand for goods and services will rise and, as a result, the output will increase. To cope with increased levels of production, unemployment levels should fall and wages should rise.

The natural rate of unemployment is the difference between those who would like a job at the current wage rate and those who are willing and able to take a job. The natural rate of unemployment will therefore include; Frictional unemployment and structural unemployment. For example, a worker who is not able to get a job because he doesn't have the right skills. The natural rate of unemployment is unemployment caused by supply-side factors rather than demand-side factors.