545 $
© 2014 Pearson Canada Inc.$
What are the advantages inflation targeting?
Answer: The advantages of inflation targeting include: 1. the simplicity and clarity of a
numerical target for the inflation rate; 2. does not rely on a stable money-inflation relationship; 3.
there is increased accountability of the central bank; 4. reduces the effects of inflationary shocks.
Diff: 2 Type: SA Page Ref: 444 - 446
Skill: Recall
Objective List: 18.2 List the advantages and disadvantages of inflation targeting
What are the disadvantages inflation targeting?
Answer: 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).
Diff: 2 Type: SA Page Ref: 446 - 448
Skill: Recall
Objective List: 18.2 List the advantages and disadvantages of inflation targeting
18.5 Lessons for Monetary Policy Strategy from the Global Financial Crisis
The decision by inflation targeters to choose inflation targets ____ zero reflects the
concern of monetary policymakers that particularly ____ inflation can have substantial
negative effects on economic growth.
A) below; high
B) below; low
C) above; high
D) above; low
Answer: D
Diff: 2 Type: MC Page Ref: 449 - 450
Skill: Recall
Objective List: 18.2 List the advantages and disadvantages of inflation targeting
Inflation targeting includes ____.
A) a public announcement of medium-term targets for inflation
B) an institutional commitment to price stability as the primary long run goal
C) an information-inclusive approach in which many variables are used in making decisions
about monetary policy
D) all of the above
Answer: D
Diff: 2 Type: MC Page Ref: 443
Skill: Recall
Objective List: 18.2 List the advantages and disadvantages of inflation targeting