Unlike a money supply target,an inflation rate target

Question

Quizplus · Accepted Answer

Inflation rate targeting can stabilize income better than a money supply target if velocity of money is unstable, as changes in velocity can affect the impact of changes in the money supply on aggregate demand. However, an inflation rate target still allows some discretion for the central bank, as they can choose the inflation target to set and adjust policy accordingly. It does not eliminate the need for a central bank.

Unlike a Money Supply Target,an Inflation Rate Target