Financial Institutions and Markets: Inflation Targeting and Costs of Inflation

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17 Questions

Which of the following is a key feature of inflation targeting as a monetary policy framework?

Committing to achieving a medium-term inflation target

How does inflation targeting aim to increase transparency in central bank policy?

By regularly communicating the central bank's policy objectives

What is the primary focus of central banks under an inflation targeting framework?

Maintaining price stability

Which of the following is a policy tool used by central banks to control the money supply?

Conducting open market operations

How does high inflation affect economic growth according to the passage?

High inflation creates uncertainty and hampers economic growth

Which central bank policy tool is used to increase the cost of borrowing and reduce the money supply?

Selling government securities

What is the primary function of a central bank?

To manage the money supply and implement monetary policy

Which of the following is NOT a common tool used by central banks to implement monetary policy?

Regulating the stock market

What is the primary goal of monetary policy according to the text?

Maintaining price stability

Why is central bank independence considered important for effective monetary policy?

All of the above

What is the primary goal of most central banks' monetary policy?

Maintaining price stability (low inflation)

What is the relationship between expansionary monetary policy and interest rates according to the text?

Expansionary policy leads to lower interest rates and higher inflation

Which of the following is NOT a common tool used by central banks to control inflation?

Implementing wage and price controls

What is the role of the central bank as a 'lender of last resort' according to the text?

To loans money to banks to prevent banking panics

What is one of the other goals of monetary policy besides price stability?

Maintaining stability in the foreign exchange market

What is the short-run trade-off described in the text between price stability and other goals of monetary policy?

Increasing interest rates helps prevent inflation but increases unemployment in the short-run

What is one of the functions of the Banking Regulation and Supervision Agency in Turkey?

Evaluating bank mergers and expansions

Learn about inflation targeting, including setting medium-term targets, commitment to monetary policy, decision-making based on multiple variables, and increasing transparency and accountability. Explore the social and economic costs of inflation, with a primary focus on price stability.

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