Inflation targeting has the potential to reduce the likelihood that the central bank will fall into the time-inconsistency trap of trying to ________ output and employment in the short run by pursuing overly ________ monetary policy.
A) lower; tight
B) expand; expansionary
C) lower; expansionary
D) expand; tight

Question

Quizplus · Accepted Answer

Inflation targeting helps central banks focus on controlling inflation over the long term, reducing the temptation to boost output and employment in the short run with overly expansionary (or loose) monetary policy, which can lead to inflationary pressures.

Inflation Targeting Has the Potential to Reduce the Likelihood That