Final answer:
The federal government targets an inflation rate of 2 to 4 percent to encourage economic growth and stability, avoiding the negative impacts of both high inflation and deflation.
Step-by-step explanation:
The federal government aims to maintain an inflation rate of 2 to 4 percent. This target is considered beneficial for a healthy economy, as it fosters economic growth without leading to the detrimental effects of high inflation, such as distorting price signals and complicating long-term financial planning. Throughout history, particularly in the post-World War periods and the 1970s, the United States has experienced periods of higher inflation. Conversely, the lowest inflation or deflation occurred during the Great Depression. Moderate inflation rates are preferred to hyperinflation, which can be destructive to an economy, as well as to deflation, which is often associated with severe recessions.