Which of these is not a reason why economies should aim for 2 to 3 percent inflation?
A) It helps firms to more easily adjust real wages
B) It allows a margin of error for those deciding on the money supply
C) It allows the Fed to more easily engage in expansionary monetary policy
D) It increases the real wage of workers

Question

Quizplus · Accepted Answer

Two of the reasons given are related to monetary policy and one is related to helping firms adjust wages. The only option that does not fit in with these reasons is D, which states that 2-3% inflation increases the real wage of workers. Inflation generally results in a decrease in the purchasing power of money, which means that workers have to spend more money to buy the same goods and services. Therefore, inflation results in a decrease in the real wage of workers, not an increase.

Which of These Is Not a Reason Why Economies Should