In discussing inflation rate targeting, Federal Reserve Bank of St. Louis President James Bullard remarked that “it really relies on private-sector expectations understanding the policy, and because they understand the policy, they expect inflation to be right around 2%. And because of that, you get good things to happen in the economy.”

a. What is inflation rate targeting? 

b. To be successful, why does inflation rate targeting depend on households and firms understanding the policy? 

c. What good things can happen in the economy as a result of inflation rate targeting?