Which of these policy targets does not provide a "nominal anchor?"
A) high-powered money
B) the unemployment rate
C) the money supply
D) the inflation rate

Question

Quizplus · Accepted Answer

A nominal anchor is a variable that acts as a target for monetary policy and helps to guide the expectations of the public regarding inflation. The variables that act as nominal anchors are those whose values are under the direct control of the central bank or whose behavior is closely related to inflation. High-powered money and the money supply are both variables that the central bank can control, and changes in their values can be used to influence inflation expectations. The inflation rate itself is another variable that can serve as a nominal anchor, as the central bank can directly target an inflation rate and use its policy instruments to keep it within a desired range. However, the unemployment rate is not a nominal anchor, as it is not directly linked to inflation and the central bank cannot control it directly. Rather, changes in the unemployment rate are affected by a range of structural and cyclical factors in the economy, and are only indirectly related to the behavior of inflation.

Which of These Policy Targets Does Not Provide a "Nominal