ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To keep inflation at a low and steady rate.
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To have full employment.
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Economic growth.
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Economic Freedom
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Detailed explanation-1: -Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting.
Detailed explanation-2: -A central bank is a public institution that is responsible for implementing monetary policy, managing the currency of a country, or group of countries, and controlling the money supply.
Detailed explanation-3: -Inflation targeting is a goals-based approach to monetary policy whereby a central bank seeks a specific annual rate of inflation for a country’s economy (normally around 2% or 3% per year).
Detailed explanation-4: -Price stability refers to an inflation rate low and stable enough that it would not influence the decision-making processes of economic agents. It is instrumental in growth and employment-the long-term targets of monetary policy.
Detailed explanation-5: -To maintain the fixed exchange rate, the central bank must intervene and sell foreign exchange to buy domestic currency. The foreign exchange market intervention will decrease the domestic money supply and shift the LM curve back to LM to restore the initial equilibrium at e.