Why Should the Central Bank Aim for Zero Inflation

question 49

Multiple Choice

Why should the central bank aim for zero inflation?

• A)because reducing inflation imposes temporary costs but provides permanent benefits
• B)because reducing inflation from 2 percent to zero is virtually costless
• C)because the government has indexed tax brackets to prevent the adverse effects of inflation
• D)because the costs of inflation are very high

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Definitions:

Resource Use

Involves the allocation and utilization of resources such as capital, labor, and materials efficiently in the production of goods and services.

Resource Demand

The need or desire for specific resources in order to produce goods or services within an economy.

Product Market

The market where end products or services are made available to consumers, businesses, and governmental bodies.

Determining Factors

Key elements that significantly influence the outcome or condition of a specific situation or context.