Question

Inflation, rather than the price level or nominal GDP, is the policy target of choice for many of the world’s central banks. Provide a reason why you think this is the case.

Answer 1

The given statement is TRUE because inflation is the major factor which is the policy target of the major World bank because inflation will reflecting the level of demand into the economy and level of demand will be the reflection of money flow into the economy.

When there would be a high level of inflation, it will mean that people are generally trying to buy a large amount of commodities into the market and it will mean that there is a large amount of money flowing to the market so monetary policy is accordingly formed in order to counter this inflation in order to restrict the money flow.

Where there would be a low amount of inflation, it would mean that people are generally trying to slow down their buying because they are expecting that economy is going to slow down and they need to save more and spend less and hence Central Bank will be formulating such policies which will be stimulating the demand into the economy because demand has been completely low due to lack of money flow

So, it can be said that rather than price level or nominal GDP policy target of choice for many of the central banks have been inflation.