Under its recent policy of inﬂation targeting, the Fed has committed to adjusting monetary policy as necessary to achieve a target inﬂation rate of
A) 5 percent.
B) 2 percent.
C) 0 percent.
D) 8 percent.

Question

Quizplus · Accepted Answer

The Fed has committed to achieving a target inflation rate of 2 percent under its recent policy of inflation targeting. This means that the Fed will adjust monetary policy to keep inflation close to 2 percent over the long-term. A target of 0 percent would mean no inflation at all, which is not desirable as it would lead to deflation. A target of 5 percent or 8 percent would be too high and lead to high inflation, which is also undesirable.

Under Its Recent Policy of Inﬂation Targeting, the Fed Has