Which of the Following Is a Problem with Inflation Targeting

question 49

Multiple Choice

Which of the following is a problem with inflation targeting?

• A)The Fed cannot simultaneously target the inflation rate and move the economy to its potential output.
• B)The amount of time it takes to recognize that inflation has escalated makes it difficult to target inflation in a timely manner.
• C)Targeting inflation in the U.S.has repercussions in global financial markets that could further aggravate inflation in the domestic economy.
• D)Since the inflation rate is not known until after the fact, the Fed would be responding to past economic conditions with policies that have an uncertain length of impact lag.

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Definitions:

Present Dividend

A dividend currently being paid out to shareholders from a company's earnings.

Intrinsic Value

The real or true value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.

Technical Analysis

The evaluation of securities by means of studying past market data, primarily price and volume.

Retain Earnings

Profits that a company has decided to keep or retain rather than paying out to shareholders in dividends or reinvesting back into the company.