An inflation rate targeting rule

Question

Quizplus · Accepted Answer

Adopting an inflation rate targeting rule reduces uncertainty about monetary policy by providing a clear and transparent framework for how the central bank will respond to changes in inflation. This helps businesses and consumers make better-informed decisions about their spending and investment plans. B is incorrect because open market operations are a key tool for implementing an inflation rate targeting rule. C is incorrect because the Fed had already adopted an inflation rate targeting regime before the financial crisis, although it may have modified its approach in response to the crisis. D is incorrect because the specific level of the inflation target will depend on the central bank's assessment of the trade-off between inflation and other macroeconomic objectives.

An Inflation Rate Targeting Rule