A zero inflation target
A)eliminates the short-run unemployment-inflation tradeoff
B)is almost impossible to achieve since it would require an extremely high natural rate of unemployment
C)can only be achieved if wage indexation is implemented nationwide
D)will have much lower costs than an explicit target of achieving a 4% long-term inflation rate
E)may not be as good as a positive inflation target, because it makes it more difficult to achieve full employment

Question

Quizplus · Accepted Answer

A zero inflation target may indeed make it more challenging to reach full employment. This is because some inflation can help adjust real wages and prices, facilitating adjustments in the labor market and overall economy. With zero inflation, nominal wage rigidity can make it harder to adjust real wages downward, potentially leading to higher unemployment. Positive inflation targets are often preferred as they provide a buffer that allows for easier wage and price adjustments, contributing to smoother economic adjustments and potentially lower unemployment rates.

A Zero Inflation Target