Which of the following statements about inflation targeting is correct? Inflation targeting

Question

Quizplus · Accepted Answer

Inflation targeting is a stabilizing policy as it requires the Bank of Canada to adjust its policies to stabilize the inflation rate, which in turn can lead to stabilization of real GDP growth. Option A is incorrect because inflation targeting is based on short to medium-term goals and does not assume the long-run neutrality of money. Option B is incorrect because inflation targeting policies are based on a systematic and rule-based framework, which helps to avoid inappropriate policy responses. Option D is incorrect because fiscal policy targeting is subject to political factors and can be less reliable than inflation targeting. Option E is incorrect because inflation targeting aims to minimize output gaps, not create them.

Which of the Following Statements About Inflation Targeting Is Correct