Why should the central bank aim for zero inflation?
A) Reducing inflation imposes temporary costs but provides permanent benefits.
B) Reducing inflation from 2 percent to 0 percent is virtually costless.
C) The government has indexed tax brackets to prevent the adverse effects of inflation.
D) The costs of inflation are very high.

Question

Quizplus · Accepted Answer

Reducing inflation imposes temporary costs, such as higher unemployment in the short run, but provides permanent benefits, such as stable prices and increased confidence in the economy in the long run.

Why Should the Central Bank Aim for Zero Inflation