Answer to Question #49096 in Macroeconomics for chuabeeyin

Question

Why are some economists against target of zero inflation?

Answer 1

Zero inflation benefits are relatively low comparingwith a moderate rise in prices, while the costs to achieve zero inflation are significant. The decline in inflation by 1% would require reducing the amount of annual production by 5%. Reducing inflation from 4% to zero will cause a reduction of GDP by 20%. With a US GDP of about $ 7 trillion costs are expressed in $ 1.4 trillion, or $ 5,000 per capita. Moreover reducing inflation is almost always accompanied by an increase in unemployment and a decrease in production volumes.