Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.
What will be an ideal response?
Inflation targeting is a framework where a central bank announces a specific target for inflation. The central bank then focuses its attention on using the operational instrument(s) to reach the ultimate objective of the inflation target. The advantages include accountability for the central bank since everyone knows the target and can gauge the performance of the central bankers. The key criteria for success would include selecting the right measure of inflation. It should be one that people outside of the central bank can calculate. Credibility is also key; the central bank has to make it clear that it takes the target seriously. As the text mentioned, most central banks that have used inflation targeting operate under a "hierarchical mandate" where inflation comes first and everything else comes second.
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If purchasing-power parity holds, then the value of the
a. nominal exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. b. nominal exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level. c. real exchange rate is equal to one. A dollar buys as many goods in the U.S. as it does overseas. d. real exchange rate is equal to one. A dollar buys the quantity of foreign currency equal to the U.S. price level divided by the foreign country's price level.
Which of the following statements describes what most likely occurred in this economy?
a. Unemployment fell below the natural rate of unemployment.
b. There was a temporary negative shock to demand-side forces.
c. A rightward shift in SRAS caused an inflationary gap.
d. An increase in input prices caused a recessionary gap.
Business fluctuations in the United States are
A. predictable. B. smooth and steady. C. controllable. D. irregular and unpredictable.
Refer to the information provided in Figure 2.4 below to answer the question(s) that follow.
Figure 2.4According to Figure 2.4, as the economy moves from Point D to Point B, the opportunity cost of hybrid cars, measured in terms of motorcycles,
A. initially increases, then decreases. B. increases. C. remains constant. D. decreases.