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:

Operating Assets

Assets used in the day-to-day operations of a business to generate income.

Net Operating Income

A company's operating profit after subtracting operating expenses from gross profit, excluding taxes and interest payments.

Reduction In Expenses

Actions or strategies implemented by an organization aimed at decreasing its total costs or expenditures to improve profitability.

Residual Income

Represents the amount of income that an investment generates above the minimum rate of return.