Setting a Target of Zero for the Inflation Rate May

question 28

Multiple Choice

Setting a target of zero for the inflation rate may be sub-optimal because

• A) measured inflation is an overestimate, so zero measured inflation effectively implies deflation
• B) the redistributive effects of unexpected inflation are Pareto efficient
• C) a stagnant price level precludes the possibility of economic growth
• D) deflation encourages investment, so the target rate for inflation should be negative
• E) all of the above