It is sometimes suggested that the federal reserve should try to achieve zero inflation. assume that velocity is constant. what must the rate of money growth equal in order to achieve this zero-inflation goal? 0%

The rate of money growth equal in order to achieve this zero-inflation goal should be if there will be an increasing process of the inflation rate with the nominal rate on the equal number of inflation number increases. And it will have no impact to the true rate.

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jepessoa jepessoa · Answer 2 · 2020-01-11T23:01:05+01:00

Answer:

Monetarists (economists that believe that the economy grows or shrinks due to monetary policies) have always argued that inflation is created by an increase in the money supply or expansionary policies carried out by the Fed. There is a strong positive statistical correlation between higher inflation and increases in the money supply. So if the Fed wants to reduce inflation, not necessarily eliminate it, the growth rate of the money supply should be 0.

The other factor that also increases the inflation rate is economic growth, but it is a minor factor, the correlation between inflation and economic growth is not always positive. And economic growth is always positive and good for everyone, so the government should try to increase economic growth, not reduce it.