Inflation Targeting and Economic Policy

The video explains the Federal Reserve's 2% inflation target, likening it to a game of darts. Originating from New Zealand's 1980s policy, the target aims to stabilize prices and guide economic health. The Fed adopted this target in 2012 under Ben Bernanke. The 2% target is low enough to avoid deflation but not too high to cause excessive inflation. Challenges include maintaining this target amidst economic shocks, leading to the 2020 flexible average inflation targeting policy. The video discusses debates on the target's effectiveness and the Fed's periodic policy reviews.

What is the primary goal of the Federal Reserve's 2% inflation target?

• To boost exports

• To increase consumer spending

• To maintain economic stability

• To reduce unemployment

Where did the concept of inflation targeting first originate?

• Canada

• New Zealand

• United Kingdom

• United States

What is the strategy called that involves informing the public about inflation targets to help achieve them?

• Inflation anchoring

• Fiscal policy

• Monetary easing

• Quantitative tightening

When did the US officially adopt the 2% inflation target?

• 2016

• 2012

• 2020

• 2008

Why is a 2% inflation target considered beneficial?

• It prevents deflation and excessive inflation

• It guarantees economic growth

• It stabilizes the stock market

• It ensures full employment

What is the purpose of the Fed's flexible average inflation targeting policy?

• To maintain a constant inflation rate

• To decrease government spending

• To balance periods of low and high inflation

• To increase interest rates

What concern is associated with a 0% inflation target?

• Rising consumer prices

• Less room to stimulate the economy

• Increased unemployment

• Higher interest rates

What is one argument against the Fed's 2% inflation target?

• It is too high and causes deflation

• It is too low and limits interest rate adjustments

• It is not based on any historical precedent

• It leads to increased government debt

How often does the Fed review its monetary policy framework?

• Every ten years

• Every five years

• Every three years

• Every year

What is a potential benefit of a higher inflation target according to some economists?

• It stabilizes currency exchange rates

• It guarantees lower unemployment

• It reduces the need for fiscal policy

• It allows more room for interest rate adjustments