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.

Question

Quizplus · Accepted Answer

The other four options all provide reasons for why central banks may target inflation rates above zero. However, lower inflation leading to higher GDP growth is not a reason why central banks would want to target an inflation rate of zero or close to zero. In fact, some central banks have a target inflation rate that is above zero but still relatively low (such as around 2%) as they believe it is beneficial for the economy.

Central Banks Tend to Target Inflation Rates Above Zero for Each