When deciding whether to tighten or loosen monetary policy, central banks weigh the relative risks to...

When deciding whether to tighten or loosen monetary policy, central banks weigh the relative risks to price stability and growth. Mention two indicators that the MPC use to gauge the risk to inflation and two indicators the MPC use to gauge the risk to growth.

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Expert Solution

Answer: MPC tried to balance the level of inflation in the economy with the growth.Hence in case of high inflation it tightens the MP and in case of low inflation it loosens the MP to boost the growth in the economy.

It considers some factors while deciding such MP, two indicators that the MPC use to gauge the risk to inflation are:

1.Consumer Price Index: which is measure of the average change over time in the prices paid by consumers in urban households for a basket of goods and services.

CPI used for indicating periods of inflation or deflation in the economy.

2.another on is Whole sale price index which measured the inflation at larger level.

two indicators the MPC use to gauge the risk to growth are:

1.GDP deflator The GDP deflator measures the aggregate prices of all goods and services produced by the entire nation

2.Producer Price Index :PPI is a more accurate measure of a country's economic output .

hope it helps.

Rahul Sunny answered 5 months ago

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