Which of the following is an appropriate definition of the target inflation rate?
A)The inflation rate at which unemployment is zero
B)The central bank's goal for the average rate of inflation over the short run
C)The central bank's goal for the average rate of inflation over the long run
D)The inflation rate at which net exports are maximized
E)None of these

Question

Quizplus · Accepted Answer

The target inflation rate is the central bank's goal for the average rate of inflation over the long run. It is typically set at a low but positive rate, such as 2%. This rate is deemed appropriate for maintaining stable economic growth and avoiding the negative consequences of deflation or high inflation. Option A is incorrect because there is no fixed relationship between inflation and unemployment, as shown by the Phillips curve. Option B is incorrect because central banks typically have a medium-to-long-term horizon when it comes to monetary policy. Option D is incorrect because there is no direct relationship between inflation and net exports.

Which of the Following Is an Appropriate Definition of the Target