Is economic inflation bad? Also, which (below) is closest to an ideal inflation rate, and why?

Question

Which is closest to an ideal inflation rate, and why:

A. -1 percent
B. 0 percent
C. 1 percent

Answer 1

Theoretical and empirical studies show that there is a cost to inflation. This cost is related to how it impacts the trade-off between current work (actually, foregone leisure) and future consumption.



However, we also suspect that inflation has some benefits. Prices are known not to respond very quickly, especially downward (revisions are periodic) and inflation does help bring prices down slowly. So it can have some mitigating effect on poor price adjustments -- which, obviously, are themselves costly. Another nice thing is that higher inflation rates give the central bank some breathing room when interest rates are already low prior to a crisis.



So, the usual belief among economists is that the inflation rate should be positive, but low under the suspiscion that there is a sweet spot to benefit from inflation without paying too much for its negative consequences. Some people believe this value should be around 4 % for countries like the United States, fearing that 2 % is too low to make hitting the lower bound on interest rates for the central bank unlikely. Others think that the value is closer to 2%. This is the official opinion at the Central Bank of Canada which decided to leave its target at 2% for another five years in early 2017.

Answer 2

C. Mild inflation will stimulate investment,jobs and growth.

Answer 3

No. I think it's great.