1) Which of the following is NOT an advantage of inflation targeting?
A) There is simplicity and clarity of the target.
B) Inflation targeting does not rely on a stable money inflation relationship.
C) There is an immediate signal on the achievement of the target.
D) Inflation targeting reduces the effects of inflation shocks.
2) Which of the following is NOT a disadvantage to inflation targeting?
A) There is a delayed signal about achievement of the target.
B) Inflation targets could impose a rigid rule on policymakers.
C) There is potential for larger output fluctuations.
D) There is a lack of transparency.
3) The decision by inflation targeters to choose inflation targets ________ zero reflects the concern of monetary policymakers that particularly ________ inflation can have substantial negative effects on real economic activity.
A) below; high
B) below; low
C) above; high
D) above; low
4) Inflation targets can increase the central bank”s flexibility in responding to declines in aggregate spending. Declines in aggregate ________ that cause the inflation rate to fall below the floor of the target range will automatically stimulate the central bank to ________ monetary policy without fearing that this action will trigger a rise in inflation expectations.
A) demand: tighten
B) demand; loosen
C) supply; tighten
D) supply; loosen