Central Banks Tend to Target Inflation Rates Above Zero for Each

question 165

Multiple Choice

Central banks tend to target inflation rates above zero for each of the following reasons EXCEPT

• A) positive inflation allows real wages to fall in some industries.
• B) counteracting negative shocks with a negative real interest rate requires inflation greater than zero.
• C) having an inflation target of zero increases the risk that the economy will experience deflation.
• D) workers resist cuts in their nominal wages.
• E) lower inflation would raise the GDP growth ratE.

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Definitions:

Periodic Amounts

Regularly scheduled payments or receipts over a defined period.

Interest

The cost of borrowing money or the return on investment for savings and investments, typically expressed as an annual percentage rate.

Liquidity Ratios

Financial metrics used to assess a company's ability to meet its short-term debt obligations, by comparing current assets to current liabilities.

Debt-Paying Ability

A financial metric used to gauge a firm's capacity to settle its obligations, often assessed through ratios such as the debt to equity or debt service coverage ratios.