The Federal Reserve will use an inﬂation rate target of 2 percent to
A) compensate for upward measurement bias in how the inﬂation rate is calculated.
B) allow for downward wage ﬂexibility.
C) avoid the zero lower bound problem.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

The use of a 2 percent inflation rate target can serve multiple purposes, including compensating for upward measurement bias in the calculation of inflation, allowing for downward wage flexibility, and avoiding the zero lower bound problem. Therefore, all of the choices are correct.

The Federal Reserve Will Use an Inﬂation Rate Target of 2