Explain what inflation targeting is. What are the advantages and disadvantages of this type of monetary policy strategy?
What will be an ideal response?
There are five main elements to inflation targeting: 1. a public announcement of a medium-term target for the inflation rate; 2. a commitment to price stability as the primary long-term goal of policy; 3. many variables are used in making decisions about policy moves; 4. increased transparency about policy strategy with the public; 5. the central bank has increased accountability for attaining policy goals.
The advantages of inflation targeting include: 1. the simplicity and clarity of a numerical target for the inflation rate; 2. there is increased accountability of the central bank; 3. reduces the effects of inflationary shocks.
The disadvantages of inflation targeting include: 1. there is a delayed signal about the achievement of the target; 2. it could lead to a rigid rule where the only focus is the inflation rate (has not happened in practice); 3. if sole focus is the inflation rate, larger output fluctuations can occur (has not happened in practice).
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Refer to the scenario above. If the number of bidders increases to 65, Molly's optimal bid for the product would be ________, and her consumer surplus would be ________
A) $836.92; $13.08 B) $831.11; $18.89 C) $765.5; $25 D) $750; $28.5
The relationship between consumer spending and disposable personal income is
A) a negative relationship. B) an inverse relationship. C) a direct relationship. D) independent.