A zero inflation rate is not the Fed's objective because
A) that would cause prices to rise
B) that would cause price to fall
C) it knows that it cannot attain a zero rate
D) it believes that the true rate of inflation is lower than what is measured by the Consumer Price Index (CPI)
E) high rates of inflation may help labor markets adjust more easily

Question

Quizplus · Accepted Answer

The Fed's objective is to maintain price stability, which is typically defined as a moderate rate of inflation of around 2%. The Fed recognizes that the CPI, which is the most commonly used measure of inflation, may overstate the true rate of inflation. Therefore, the Fed may aim for a slightly higher inflation rate to ensure that the true rate of inflation remains at or near its target level. A zero inflation rate would not be desirable because it could lead to deflation, which can be harmful to the economy.

A Zero Inflation Rate Is Not the Fed's Objective Because