Nominal GDP targeting implies that
A)there is an implicit monetary policy tradeoff between inflation and unemployment
B)the Fed will never have to adjust its monetary targets even if there is a shift in money demand
C)the Fed will never have to make adjustments in its money stock targets as disturbances hit the economy
D)the desire to maintain full employment outweighs any risk of an inflationary bias
E)none of the above

Question

Quizplus · Accepted Answer

Nominal GDP targeting implies that the Fed will adjust its monetary policy targets to achieve a certain level of nominal GDP, which means that there could be a tradeoff between inflation and unemployment. If the economy is operating below potential, the Fed will increase the money supply to boost spending and employment, even if it risks higher inflation. If the economy is overheating, the Fed will tighten monetary policy to slow down spending and inflation, even if it leads to higher unemployment. However, nominal GDP targeting does not mean that the Fed will never adjust its monetary targets or that full employment is always the top priority. The focus is on achieving a stable and predictable level of nominal GDP growth.

Nominal GDP Targeting Implies That