Questions:

Read the British Treasury's background notes on: The Inflation Target and Remit for the Monetary Policy Council.

1. Summarize the arguments contained in paragraphs (9) - (13).
2. According to this document, when should inflation be allowed to deviate from the target?
3. Use a diagram containing AD and IA curves to illustrate the argument raised in paragraph (26).
4. Use a diagram containing AD and IA curves to illustrate the argument raised in paragraphs (27)-(28). Why does a short-term conflict exist here?