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:

Direct Labor Budget

A financial plan that forecasts the costs associated with the labor directly involved in the production of goods or services.

Direct Labor-Hour

A metric indicating the total hours worked by employees directly involved in the production process, often used for costing purposes.

Labor Rate

The amount paid to an employee per unit of time, usually per hour or year.

Direct Materials Purchase Budget

A financial plan that estimates the quantities and costs of direct materials to be purchased to meet production requirements.