Question

Consider the following statements and choose the option which is correct.

(1) Inflation targeting focuses mainly on achieving price stability as the ultimate objective of Monetary policy.

(2) Monetary policy & fiscal policy have to converge for achievement of inflation targeting.

(3) The basket of items in CPI does not include machinery, chemicals etc.

• A. Only 2 & 3 are correct
• B. None of the above is correct
• C. Only 1 is correct
• D. All the above are correct

Answer 1

The correct option is D All the above are correct

• In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It focuses mainly on achieving price stability as the ultimate objective of Monetary policy.Monetary policy is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money.
  
• Monetary policy & fiscal policy have to converge for achievement of inflation targeting.
  
• The basket of items in CPI does not include machinery, chemicals etc. Aconsumer price index(CPI) measures changes in the price level of market basket of consumer goods and services purchased by households and chemicals and machinery are not bought by household and hence does not include them.