Reading comprehension · solved example
Central banks around the world increasingly rely on a framework known as inflation targeting. Under it, the bank publicly commits to keeping inflation near a stated number and adjusts interest rates to steer prices towards that goal. Supporters argue that a clear target anchors the expectations of businesses and households, so that a temporary shock does not spiral into a lasting rise in prices. Critics counter that a rigid focus on inflation can lead a bank to ignore unemployment and financial stability. In practice, most central banks treat the target as a guide rather than a strict rule, allowing themselves room to respond to a crisis.
Which of the following best expresses the central idea of the passage?
- Inflation targeting has completely failed as a policy framework.
- Inflation targeting is a widely used framework with clear merits and real criticisms, applied flexibly in practice.Correct
- Central banks should abandon interest rates as a policy tool.
- Unemployment is the only concern of modern central banks.
- Inflation can never be controlled by any central bank.
Solution
The passage explains what inflation targeting is, gives the supporters' case and the critics' case, and notes that banks apply it as a flexible guide. Option B captures all three strands. The other options each overstate one part or contradict the passage.