Question

Explain inflation targeting in the U.S. and explain two pros and two cons for inflation targeting.

Answer 1

Inflation targeting is nothing but the central bank part of a monetary policy where the target inflation rate is set for the medium term and it is announce publicly and efforts are made to maintain inflation at that rate.

Pros

1) avoid massive economic changes such as economic boma economic bust as a inflation rate is set a particular position when the inflation target of United States is around 2% always

2) there reduced expectations for inflation as a result of which the economy can run smoothly

Cons

1) sometimes inflation targeting can contradict economic growth as at times one requires high inflation for the growth of the economy

2) the in flexibility is another major complexity of target inflation where it cannot be adjusted according to the market situations in this can lead to negative impact in the economy