A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

Question

Quizplus · Accepted Answer

Setting a slightly higher inflation target can help avoid the risks of deflation while still achieving the objective of price stability. This way, if prices are falling slightly, the central bank can increase inflation slightly to prevent a deflationary spiral. This approach has been taken by some central banks, such as the Federal Reserve, which has a target inflation rate of 2%.

A Way for Policymakers to Avoid the Problems That Deflation