Describe the strategy of inflation targeting. Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?
What will be an ideal response?
Under inflation targeting, the central bank announces the inflation rate that it will try to achieve over the next 1 to 4 years. Countries have moved to inflation targeting because money-growth targeting had problems in the 1980s as money demand became unstable. Inflation targeting has the advantage of sidestepping the problem of instability in money demand, of being easier to explain to the public, and of increasing the central bank's accountability to the public. But the major disadvantage of inflation targeting is that the long lags through which inflation responds to monetary policy make it difficult for the central bank to judge what policy actions are needed.
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Which of the following government policies ensures market efficiency?
A) subsidy B) tax C) price regulations D) quantity regulations E) None of the above answers is correct.
The long-run average cost curve connects the lower part of the short-run cost curves because:
A) prices of inputs are less when acquired for a longer time period. B) in the long run, firms have more flexibility to change input combinations. C) specialization of inputs increases productivity only in the long run. D) the firms earn positive profits in the long run.