A problem associated with targeting inflation at zero is that:
A)it could lead to hyperinflation in the long run.
B)it could lead to deflation.
C)it could lead to a deficit in the government budget.
D)it could reduce aggregate demand.
E)it could reduce net exports.

Question

Quizplus · Accepted Answer

Targeting inflation at zero could lead to deflation, which has negative consequences for the economy. Deflation can trigger a vicious cycle of falling prices and reduced economic activity, as consumers and businesses delay purchases in anticipation of further price declines. This can lead to lower demand, reduced production, and job losses.

A Problem Associated with Targeting Inflation at Zero Is That