Question

One of the goals of the Federal Reserve is price stability. For the Fed to achieve this​ goal,

A. prices should not be increasing and the inflation rate should be near zero percent.
B. the inflation rate should be consistent but the rate of inflation can be​ zero, low​ (such as​ 1-3%), or high​ (such as​ 8-10%).
C. the rate of inflation should be​ low, such as​ 1% to​ 3%, and should be fairly consistent.
D. the level of unemployment should be​ low, less than​ 6%, and the inflation rate should be near zero percent.

Answer 1

The correct answer is option C.

Step-by-step explanation:

One of the goals of the federal reserve banks is to have price stability in the economy. Though price stability does not imply zero inflation. A small level of inflation is good for economy as it helps in growth of production.

So in order to acheive the goal of price stability, the rate of inflation should be low such as 1-3% and it should be consistent.

Very high inflation is harmful for the economy as it erodes the real income and wealth. Deflation is also not good for economy as it causes reduction in production and employment