In terms of price stability, why would the Fed not seek a target rate of 0 percent?
A) because that would mean inflation
B) because that would mean hyperinflation
C) because that would mean deflation
D) because unemployment would fall below the natural rate
E) because their models cannot operate with zero variables

Question

Quizplus · Accepted Answer

A target rate of 0 percent would risk deflation, which can have harmful effects on an economy. Deflation can make it more expensive for people to pay off debt, and reduce consumer spending as people hold off on purchases in anticipation of lower prices. A small level of inflation is generally preferred for price stability, as it ensures that prices and wages do not become sticky and that the economy keeps moving forward.

In Terms of Price Stability, Why Would the Fed Not