Question

All of the following are arguments against an explicit inflation targeting rule for monetary policy except:

A. An explicit target assumes that the Fed can accurately forecast future inflation rates
B. An explicit target reduces the flexibility of monetary policy to address other economic issues
C. An explicit target is easier to understand by households and firms which makes monetary policy more transparent

Answer 1

C. An explicit target is easier to understand by households and firms which makes monetary policy more transparent.

Step-by-step explanation:

Explicit inflation targeting is a monetary policy used by central banks to check inflation rate is under control for medium term. However, critics target this policy as they believe that instead central bank should have monetary policy for long term inflation control and economic growth for long term. Product price targeting or nominal income targeting would create more economic stability.