The squared deviation of inflation from its target value perhaps zero) is employed as a measure of "inflation loss" because
A) both positive deviations and negative deviations are costly.
B) we need to square the measured deviations to produce appropriate units for the necessary comparison with "unemployment loss."
C) it is a convenient measure routinely reported as output from statistical studies.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

Both positive and negative deviations from the inflation target are considered costly, which is why the squared deviation is used as a measure of "inflation loss." This approach ensures that both undershooting and overshooting the target are treated as undesirable outcomes.

The Squared Deviation of Inflation from Its Target Value Perhaps