Which of the following statements about inflation targeting is true?
A)Inflation targeting would not allow the central bank the flexibility to take action against a severe recession.
B)Inflation targeting has been adopted by the central banks of fewer than five countries.
C)With changes in leadership over time at the Bank of Canada, inflation targeting could help institutionalize good Canadian monetary policy.
D)Inflation targeting is practiced strongly in Canada but is ignored in Europe.
E)Inflation targeting prevents central banks from changing the money supply.

Question

Quizplus · Accepted Answer

Inflation targeting is a monetary policy framework where a central bank sets an explicit target for inflation and adjusts its policy instruments (such as interest rates) to achieve that target. Option A is incorrect, as inflation targeting can still allow for action against a severe recession, although the focus may shift temporarily away from the inflation target. Option B is incorrect, as inflation targeting has been adopted by many countries, including Australia, Canada, New Zealand, Sweden, and the United Kingdom. Option D is incorrect, as inflation targeting is also practiced in Europe, especially by the European Central Bank. Option E is incorrect, as inflation targeting allows central banks to adjust the money supply to achieve their inflation targets. Option C is correct, as inflation targeting in Canada has helped to institutionalize good monetary policy practices over time, regardless of changes in leadership at the Bank of Canada.

Which of the Following Statements About Inflation Targeting Is True