If core inflation is 2 percent, then most economists believe that

Question

Quizplus · Accepted Answer

Most economists believe that an inflation rate of around 2 percent is essentially the same as price stability, meaning that it is not high enough to significantly distort the allocation of resources or cause economic inefficiencies. This belief is based on the assumption that the 2 percent core inflation rate reflects changes in underlying economic fundamentals (such as productivity growth and changes in relative prices) rather than temporary supply-side shocks or demand pressures. Thus, it is generally considered a desirable rate of inflation for central banks to target. Option A is incorrect because the optimal real interest rate depends on a variety of factors beyond the inflation rate. Option C is incorrect because sticky wages can create short-term unemployment, but they do not necessarily imply that workers will be hurt in the long run, especially if inflation is stable and predictable. Option D is incorrect because price stability does not necessarily mean zero or negative inflation.

If Core Inflation Is 2 Percent, Then Most Economists Believe