Question

Which of the following is true with respect to inflation targeting?

1) It is a monetary policy strategy used by central banks to manage inflation.
2) It involves setting a specific inflation target and using monetary policy tools to achieve that target.
3) It is commonly used by countries around the world.
4) All of the above

Answer 1

Inflation targeting is a monetary policy strategy used by central banks to manage inflation by setting and striving to achieve a specific inflation target. It has been widely adopted around the world, and many countries have central banking laws that require targeting inflation, with the U.S. Federal Reserve as a major exception, focusing on both unemployment and inflation.

Step-by-step explanation:

All of the following statements about inflation targeting are true:

1. It is a monetary policy strategy used by central banks to manage inflation.
2. It involves setting a specific inflation target and using monetary policy tools to achieve that target.
3. It is commonly used by countries around the world.

Many countries have adopted inflation targeting to ensure a low rate of inflation and have enacted legal requirements for their central banks to pursue this goal. By 2014, central banks in 28 countries, including Austria, Brazil, Canada, Israel, Korea, Mexico, New Zealand, Spain, Sweden, Thailand, and the United Kingdom, were legally mandated to target inflation. The United States Federal Reserve is a notable exception, as it is required by law to consider both unemployment and inflation, thus not practicing strict inflation targeting.