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Chapter 15: Q.30 (page 379)

How does a monetary policy of inflation target work?

Short Answer

Expert verified

Monetary policy of inflation target stimulates the economy.

Step by step solution

01

Concept introduction 

Inflation targeting is a system in which a central bank sets an inflation rate as a target and adjusts monetary policy to attain that rate.

02

Inflation targets encourage economic growth. 

This is done by the central bank to get you to accept that prices will continue to rise. It boosts the economy by forcing you to purchase products before they become more expensive.

03

Inflation target rate 

Most central banks employ an inflation target of2%

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Most popular questions from this chapter

Bank runs are often described as "self-fulfilling prophecies." Why is this phrase appropriate to bank runs?

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Is it preferable for central banks to primarily target inflation or unemployment? Why?
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