The advantage of an explicit inflation target is that:
A)it helps anchor inflation expectations.
B)it allows banks to set interest rates.
C)it stabilizes employment.
D)it raises the marginal product of capital.
E)it completely eradicates discretionary monetary policy.

Question

Quizplus · Accepted Answer

An explicit inflation target helps anchor inflation expectations, meaning that businesses and individuals have a clear idea of what the central bank believes to be an appropriate level of inflation, which in turn can help guide their own behavior and decision-making. This can help increase stability and predictability in the economy, as businesses and individuals can better plan for the future.

The Advantage of an Explicit Inflation Target Is That