If a central bank targets inflation, then
A)a reduction in unemployment will cause only a modest increase in inflation
B)its policy implies an automatic tradeoff between inflation and unemployment
C)it must assume that the Phillips curve is fairly flat
D)it is guided by the belief that large deviations from full-employment are rare
E)all of the above

Question

Quizplus · Accepted Answer

A central bank targeting inflation typically operates under the belief that the economy is usually close to full employment, and thus large deviations from full employment are rare. This allows them to focus primarily on controlling inflation.

If a Central Bank Targets Inflation, Then