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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A. decreases; increases B. does not change; does not change C. increases; decreases D. increases; increases
Which of the following provides the clearest example of human capital?
A) Automated equipment that can be used without any accompanying human labor B) Corporate stock owned by individuals and families rather than institutions such as mutual funds or corporations C) Machinery that has been designed and constructed by human beings D) Tools that cannot be used effectively except in combination with workers E) The ability to read
Refer to the figure above. What is the consumer surplus in the market?
A) $60 B) $90 C) $120 D) $160
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