Economists believe that ________ is useful to stimulate the economy in the short run by cutting real wages and real interest rates.
A) hyperinflation
B) modest inflation
C) negative inflation
D) zero inflation

Question

Quizplus · Accepted Answer

Modest inflation is useful to stimulate the economy in the short run because it allows for a decrease in real wages (as nominal wages may stay constant while prices increase) and a decrease in real interest rates (as nominal interest rates may stay constant while prices increase). Hyperinflation, negative inflation, and zero inflation do not have the same stimulative effect on the economy.

Economists Believe That ________ Is Useful to Stimulate the Economy