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20. Impact of Inflation Targeting by the Fed Assume that the Fed adopts an inflation targeting strategy. Describe how the Fed
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Fed will be forced to increase the federal fund rates, that will discourage the demand so that inflation will be controlled and it will be put under the inflation rate target. It will resolve the problem is rise in the price of oil due to shortage, as decrease in AD, will cause price to be checked and inflation rate will come down.

It will be more effective than the strategy of balancing the act between inflation and unemployment, because inflation and unemployment are conflicting in nature and it will not produce the desired results when balancing strategy is used.

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