To achieve an inflation target, the central bank forecasts AD then sets a ________________________ to achieve the required __________________.

Question

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The central bank sets a nominal interest rate to achieve the required real interest rate. The nominal interest rate directly influences borrowing and spending, which in turn affects inflation. However, the real interest rate, which is adjusted for inflation, is the key target that influences economic behavior.

To Achieve an Inflation Target, the Central Bank Forecasts AD