Question

The stated goal of the Federal Reserve is __________________ 2% inflation but only considering food and...

The stated goal of the Federal Reserve is __________________

2% inflation but only considering food and energy prices
0 inflation - prices should be consistent over time
2% overall inflation
2% "Core" inflation ignoring food and energy prices
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Answer #1

Option C.

  • The stated goal of the federal reserve is 2% overall inflation.
  • The federal reserve aims at keeping 2% inflation in an economy as it is more riskier and costlier to have a higher inflation rate in an economy.
  • This is because higher inflation rates can distort the economy in terms of prices, as they change rapidly when inflation is high.
  • Keeping inflation rate at zero can also lead to economic weakness and distortions. Hence by keeping the inflation rate low at 2%, the central bank can overcome economic distortions.
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