One reason the Fed tolerates ongoing inflation is because it
A) believes that the CPI understates the actual inflation rate
B) believes that the CPI overstates the actual inflation rate
C) accepts the idea that a zero inflation rate would make labor markets work more smoothly
D) wants to focus more on price stability than on full employment
E) is uncertain about the long-run stability of the Phillips curve

Question

Quizplus · Accepted Answer

The Fed tolerates some inflation because it believes that the CPI may overstate the actual inflation rate due to factors like quality improvements and substitution bias.

One Reason the Fed Tolerates Ongoing Inflation Is Because It