the next year's target to return the economy to trend growth. The name for this policy is NGDP level targeting (NGDPLT). The rate targeting alternative, which targets a constant growth rate per period allows growth to drift lower or higher over time than implied by straightforward compound growth, because each period's target growth depends on the nominal income in the prior only. Effective policy Monetary policy that ensures a NGDP target is met by definition avoids recessions in nominal terms, and by maintaining aggregate demand softens recessions in real terms albeit by adding inflation to ensure NGDP is level. A US target of five percent growth is often recommended with the expectation that it would on average comprise three percent real growth (the historical average growth rate during the so-called Great Moderation) and two percent inflation (as currently targeted by the US Federal Reserve). An alternative target of three percent was proposed with the expectation of nominal growth mirroring the real growth rate, and zero average inflation. This lower target has the potential downside of being deflationary if real growth exceeds the three percent target, implying deflation. However, any nominal target could conceivably be either deflationary or inflationary if real growth sharply deviated from expectations in either direction. Labour supply Charlie Bean discussed optimal conditions for nominal income targets. Let and be labour demand and labour supply, respectively. They are expressed as follows: where and are the wage and price level respectively. is a productivity shock. And , and d is positive. In an equilibrium state, the labour demand and supply become equal to each other, which yields where is the market clearing level. Then consider the expected market clearing level of the wage: Substituting into the labour demand equation, we write it as: Since output is expressed as it turns out that it becomes: Immediately we have and that yields This equation says that a negative productivity shock of, say, 5 percent is cancelled out by the increase in the price level of 5 percent, provided that the money wage is fixed. If we consider the full information level of output , which is obtained by setting , then we have Then the deviation of output from its full information level becomes: Introducing as , we obtain the following formula: Macroeconomic stabilisation policy aims at minimising the variance of , and this formula suggests that if , that is