The problems of raising the level of the inflation target include
A)if the zero-lower-bound problem is rare,then the benefits of a higher inflation target are not very large.
B)the costs of higher inflation in terms of the distortions it produces in the economy are high.
C)it is more difficult to stabilize the inflation rate at a higher targeting level.
D)all of the above.

Question

Quizplus · Accepted Answer

Choice A is true because if the zero-lower-bound problem is rare, then the benefits of a higher inflation target are not very large. Choice B is also true because higher inflation leads to higher interest rates, which can harm economic growth. Choice C is true because it is more difficult to stabilize the inflation rate at a higher targeting level due to the increased sensitivity of monetary policy to changes in the economy. Therefore, all the statements are valid and the correct option is D.

The Problems of Raising the Level of the Inflation Target