Potential weaknesses of nominal GDP targeting include
A)it requires accurate estimates of potential GDP growth,which are not easy to achieve.
B)real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
C)it is more complicated to explain to the public than inflation targeting and thus the public might be confused about the objectives of the central bank.
D)both A and C.

Question

Quizplus · Accepted Answer

Option A is true because nominal GDP targeting relies heavily on estimates of potential GDP growth, and deviations from these estimates can lead to policy mistakes. Option B is incorrect because inflation and real GDP growth targeting suffer from the same problem. Option C is also accurate because nominal GDP targeting can be challenging to explain to the public, particularly compared to the more straightforward target of inflation.

Potential Weaknesses of Nominal GDP Targeting Include