(a) Can central banks target both the money supply and short-term interest rates simultaneously? Why?

(b) Describe the strategy of inflation targeting.

(c) List some countries (at least two) that use inflation targeting for monetary policy.

(d) What are the disadvantages of inflation targeting?

(e) Show using the IS-LM and the AD-LRAS-SRAS figures what happens to real interest rate, output and prices if real money supply increases. Explain.

Answer rating: 100% (QA)

a The central bank can target both money supply and shortterm interest rates simultaneously but it is impossible for it to control them independently ... View the full answer