Explain how the statement by the FOMC in 2012 that an annual infltion rate of 2

Question

Explain how the statement by the FOMC in 2012 that an annual infltion rate of 2 percent over the long run is consistent with its mandate can help the Federal Reserve fulfill that mandate. n order to receive full credit, you must make a selection for each option. For correct answerfs, click the box once to the option twice to empty the box. Announcing a target indicates the independence of the Fed 12 The Fed statemen on inflation expectations helps anchor inflationary expectations. 2 Announcing a target raises the cost of reneging on the commitment, making the policy time consistent 2 Inflation expectations inform firms' pricing and wage decisions, therefore firm decisions support the inflation target 2 The Fed statement indicates the political leaders are supportive of the policy A credible central bank rarely keeps inflation near its target.

Explanation / Answer

Announcing a target indicated that the federal bank is independent in taking decisions on their own about the economy.If they announce a target then the public forms an expectation about inflation on the available data and firms also adjust their pricing and wage rate decisions based on inflationary expectations.

Answer-rises,second,fourth options.

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