Question

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability. Such a variable is called a nominal __________.A) anchor. B) benchmark. C) tether. D) guideline.

Answer 1

A) anchor.

Step-by-step explanation:

Nominal anchor- It is a government policy to stablize economy as it pin down inflation expectation by the constraint on the value of domestic money. It also reduce the time inconsistency issue by providing expected constraint on monetary policy.

There are few advantages and disadvantages of Nominal Anchor.

Advantages:

• Policy help to overcome time inconsistency problem.
• Uses various scources of information to make decision.

Disadvantages

• Lack of accountability.
• Dependence on ability and trust of people.