B3. (a) In light of the Covid-19 pandemic, one way of reducing the likelihood of central banks encountering the zero-lower bound problem is to have a higher inflation target. Evaluate the benefits and costs of this proposal. In the course of your answer, do the following: i. Explain the costs of inflation. ii. Refer to the role of expectations. iii. Discuss the impact of a higher inflation on the economy and effectiveness of monetary policy via the Fisher equation. [25 marks] (b) Following the 2008 global financial crisis, why might macroprudential regulation be more effective in managing asset price bubbles than monetary policy. [10 marks] B3. (a) In light of the Covid-19 pandemic, one way of reducing the likelihood of central banks encountering the zero-lower bound problem is to have a higher inflation target. Evaluate the benefits and costs of this proposal. In the course of your answer, do the following: i. Explain the costs of inflation. ii. Refer to the role of expectations. iii. Discuss the impact of a higher inflation on the economy and effectiveness of monetary policy via the Fisher equation. [25 marks] (b) Following the 2008 global financial crisis, why might macroprudential regulation be more effective in managing asset price bubbles than monetary policy. [10 marks]