Why doesn't the Fed eliminate inflation from the economy entirely?
A) It is incapable of doing so.
B) It believes that inflation is bad for the economy.
C) It believes that the measured inflation rate understates the true rate of inflation.
D) It recognizes that continuing inflation helps labor markets adjust more easily.
E) If it did so,no one would get a raise in salary.

Question

Quizplus · Accepted Answer

The Fed recognizes that a moderate level of inflation can help labor markets adjust more easily by allowing real wages to adjust without nominal wage cuts, which can be difficult to implement.

Why Doesn't the Fed Eliminate Inflation from the Economy Entirely