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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Which of the following is NOT an argument for maintaining a positive rate of inflation?

a. It permits real interest rates to be negative,

b. It allows real wages to fall without cuts in nominal wages.

c. It increases the variability of relative prices.

d. It would be costly to reduce inflation to zero.

To determine

Why theargument is not related to maintaining positive inflation rate.

Explanation

Option (c):

Menu costs associated with increasing variability of relative prices is one of the costs of inflation. Hence, the statement is not in agreement with the given argument. Thus, option ‘c’ is correct.

Option (a):

Positive inflation rate allows the possibility of negative real interest rates. This is because a cut in the nominal interest rates below the inflation rate produces negative real interest rates. So, the statement is true. Thus, option ‘a’ is incorrect...

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