ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -To keep inflation low and stable, the Government sets us an inflation target of 2%. This helps everyone plan for the future. If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending.

Detailed explanation-2: -What we use monetary policy for. Monetary policy affects how much prices are rising – called the rate of inflation. We set monetary policy to achieve the Government’s target of keeping inflation at 2%. Low and stable inflation is good for the UK’s economy and it is our main monetary policy aim.

Detailed explanation-3: -The 2% inflation target is key to the Federal Reserve’s vision for stable prices in the U.S. economy, according to the Federal Reserve Bank of St. Louis. Canada, Australia, Japan and Israel are among the many economies that include 2% in their inflation rate targets, according to the International Monetary Fund.

Detailed explanation-4: -Reasons for our inflation target of 2% Providing a safety margin against the risk of deflation and making sure monetary policy remains effective when it needs to respond to inflation that is too low. Having a margin against deflation is important because there are limits to how far interest rates can be cut.

Detailed explanation-5: -Since 2012, the U.S. Federal Reserve has targeted an inflation rate of 2% as measured by the Personal Consumption Expenditures (PCE) Price Index. Keeping inflation low is one of the Fed’s dual mandate objectives, along with stable and low unemployment levels.