The advantage of an explicit inflation target is that it:
A) helps anchor inflation expectations.
B) allows banks to set interest rates.
C) stabilizes employment.
D) raises the marginal product of capital.
E) completely eradicates discretionary monetary policy.

Question

Quizplus · Accepted Answer

An explicit inflation target helps anchor inflation expectations, which can help reduce uncertainty and improve financial planning for investors and consumers alike. This can also create a more stable macroeconomic environment, leading to potential benefits for employment and economic growth. However, it does not necessarily allow banks to set interest rates or eliminate discretionary monetary policy.

The Advantage of an Explicit Inflation Target Is That It