A central bank that attempts to achieve a zero rate of inflation:
A)cannot achieve price level stability in the long run.
B)increases the risk of deflation.
C)can occasionally achieve negative real interest rates.
D)makes it easier for real wages to be reduced without cutting nominal wages.

Question

Quizplus · Accepted Answer

Attempting to achieve a zero rate of inflation increases the risk of deflation, as any negative economic shock could push the inflation rate below zero.

A Central Bank That Attempts to Achieve a Zero Rate