Inflation targeting is a monetary policy strategy primarily focused on:
A) Controlling government expenditure
B) Achieving a specific inflation rate
C) Maintaining stable exchange rates
D) Increasing tax revenue
The main goal of inflation targeting is to:
A) Maximize government spending
B) Achieve long-term price stability
C) Increase the national debt
D) Limit the supply of money in circulation
Which of the following is typically used by central banks to control inflation?
A) Interest rate adjustments
B) Increasing government expenditure
C) Increasing tax rates
D) Decreasing the money supply through external borrowing
In the context of inflation targeting, which of the following is true?
A) Inflation targeting requires the central bank to target a specific inflation rate
B) Inflation targeting is an unregulated form of monetary policy
C) Central banks must target inflation without adjusting interest rates
D) Inflation targeting aims to reduce inflation to zero at all costs
What is the key benefit of inflation targeting?
A) It leads to higher government spending
B) It provides transparency and accountability in monetary policy
C) It helps central banks manipulate currency exchange rates
D) It ensures inflation will always stay at zero
Which of the following is an example of a tool used by central banks to manage inflation?
A) Open market operations
B) Subsidizing key industries
C) Increasing government subsidies for imports
D) Decreasing tariffs on foreign goods
In inflation targeting, central banks often aim for an inflation rate of:
A) 0%
B) 2%
C) 5%
D) 10%
Which of the following is NOT typically a consequence of high inflation?
A) Increased cost of living
B) Reduced purchasing power
C) Increased investment certainty
D) Erosion of savings
Monetary stability refers to:
A) Achieving a balance between inflation and unemployment
B) Ensuring long-term price stability and sustainable economic growth
C) Maintaining high inflation rates for economic growth
D) Reducing government control over financial institutions
Which of the following would most likely increase inflation in an economy?
A) A reduction in the money supply
B) A decrease in government spending
C) A decrease in interest rates
D) An increase in the supply of labor
A central bank might raise interest rates in response to:
A) High inflation
B) A decrease in government spending
C) A drop in unemployment
D) A decrease in wages
Which of the following is a key challenge in inflation targeting?
A) Predicting future inflation rates accurately
B) Balancing inflation with full employment
C) Ensuring that currency values remain fixed
D) Limiting the growth of the money supply
In an inflation-targeting regime, central banks often:
A) Focus solely on reducing government debt
B) Avoid any monetary interventions
C) Use interest rate changes to achieve the inflation target
D) Implement price controls on basic goods
Which of the following can lead to monetary instability?
A) Sudden and unpredictable inflation spikes
B) Clear and consistent policy communication
C) A gradual decrease in interest rates
D) Stable currency values
What is the impact of inflation targeting on economic growth?
A) It guarantees rapid economic growth
B) It can lead to more stable and sustainable growth by controlling inflation
C) It leads to higher interest rates and reduced investment
D) It eliminates all risk in the economy
Inflation targeting is most effective when:
A) Central banks avoid intervening in the economy
B) The central bank has a clear commitment to low inflation
C) Government spending is at its highest level
D) Interest rates are kept at zero
Which of the following is often targeted alongside inflation in monetary policy?
A) Employment rate
B) Economic growth rate
C) Exchange rates
D) Tax rates
Which of the following is a consequence of persistently low inflation or deflation?
A) Economic boom and rapid growth
B) Higher consumer confidence and spending
C) Economic stagnation and rising unemployment
D) Increased foreign investments
What is the role of a central bank in inflation targeting?
A) To determine the government’s fiscal policies
B) To monitor and control the country’s inflation rate through monetary policy
C) To regulate prices of essential goods and services
D) To issue new physical currency regularly
Which of the following statements is true about inflation targeting in developing countries?
A) Inflation targeting is often difficult to implement due to unstable economic conditions
B) Inflation targeting has no impact on economic stability
C) Developing countries always set a higher inflation target than developed nations
D) Inflation targeting is not considered relevant for developing countries
What is an inflationary gap?
A) The difference between actual and potential output when the economy is overheating
B) The gap between fiscal revenue and expenditures
C) The difference between actual and forecasted inflation rates
D) The gap between wage growth and inflation rate
Which of the following is most likely to occur when inflation is kept below the target level?
A) High unemployment rates
B) Lower interest rates
C) A booming housing market
D) Increased consumer spending
What is the effect of monetary policy tightening on inflation?
A) It is likely to reduce inflation
B) It has no effect on inflation
C) It leads to higher inflation
D) It directly increases government debt
Which of the following does the central bank control to achieve inflation targets?
A) The stock market
B) The government budget deficit
C) The interest rate and money supply
D) The exchange rate policy
The main cause of hyperinflation is typically:
A) Excessive government spending and printing money
B) Tight control over money supply
C) A sudden decrease in government revenue
D) The implementation of austerity measures
Which of the following is a consequence of high inflation for consumers?
A) Increased purchasing power
B) Stable prices for everyday goods
C) Decreased purchasing power
D) Increased savings rates
Which of the following is a common criticism of inflation targeting?
A) It can lead to excessive government spending
B) It may not be suitable during times of economic shock or instability
C) It guarantees zero inflation in all economies
D) It directly influences wages and salaries
Monetary policy that aims to control inflation typically includes all of the following EXCEPT:
A) Raising interest rates to reduce spending and borrowing
B) Increasing the money supply to encourage investment
C) Selling government bonds to remove excess currency from circulation
D) Reducing government borrowing
Which of the following is true about an inflation targeting framework?
A) It requires constant changes in government fiscal policy
B) It provides clear and transparent communication regarding monetary policy goals
C) It leads to volatile and unpredictable inflation rates
D) It does not involve the central bank’s interest rate decisions
Inflation targeting can be considered successful when:
A) Inflation fluctuates wildly above the target rate
B) Inflation remains stable and near the target rate for a sustained period
C) The government controls all prices within the economy
D) The unemployment rate is minimized
