Why Should the Central Bank Aim for a Moderate Rate

question 41

Multiple Choice

Why should the central bank aim for a moderate rate, instead of a zero rate, of inflation?

• A) to keep the natural rate of unemployment low
• B) because the social costs of moderate inflation are high
• C) because it is very difficult to maintain a zero rate of inflation in the long run
• D) the benefits of zero inflation are small but the costs of reaching zero inflation are large.

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Definitions:

Chlorpromazine

A phenothiazine drug commonly used for treating schizophrenia. Marketed as Thorazine.

Neuroleptic Malignant Syndrome

A severe, potentially fatal reaction to antipsychotic drugs, marked by muscle rigidity, fever, altered consciousness, and autonomic dysfunction.

Autonomic Dysfunction

A condition where the autonomic nervous system (ANS) does not work properly, affecting bodily functions such as heart rate, blood pressure, and digestion.

Antipsychotic Drugs

Medications aimed at managing psychosis, including schizophrenia and bipolar disorder, by adjusting neurotransmitter levels in the brain.