Why Should the Central Bank Aim for Zero Inflation

question 19

Multiple Choice

Why should the central bank aim for zero inflation?

• A) Reducing inflation imposes temporary costs but provides permanent benefits.
• B) Reducing inflation from 2 percent to 0 percent is virtually costless.
• C) The government has indexed tax brackets to prevent the adverse effects of inflation.
• D) The costs of inflation are very high.

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Definitions:

Continental Crust

The thick layer of granite, sedimentary, and metamorphic rocks that forms the continents and continental shelves, distinct from oceanic crust.

Oceanic Crust

A thin layer of Earth's crust that lies beneath the ocean basins, composed mainly of basalt.

Elevation

The vertical distance of an object above or below a reference datum (usually mean sea level); generally the height of a ground point above sea level.

Green Mineral Olivine

A common silicate mineral found in the Earth's mantle, recognized by its olive-green color.