Formally Adopting Inflation Targeting Can Lead to

question 1

Multiple Choice

Formally adopting inflation targeting can lead to

• A) a short run recession.
• B) long run price stability.
• C) a loss of independence for the central bank.
• D) all of the above.

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Definitions:

Crowding-Out Effect

A situation where increased government spending leads to a reduction in private sector spending, which could negate the stimulus effect of the government's spending.

Government Borrowing

The act of governments raising funds through issuing debt securities or borrowing directly from financial institutions to finance government spending.

Private Sector

The private sector encompasses businesses and activities not owned or directly managed by the government, operating primarily through the private enterprise and market system.

Balanced Budget

A financial situation where revenues are equal to expenditures, resulting in no deficit or surplus.