Asked by Natasha De Freitas on Jul 24, 2024
Verified
Unexpected and large deflation is desirable, according to the Friedman rule.
Friedman Rule
A monetary policy rule proposed by economist Milton Friedman, suggesting that the optimal nominal interest rate is zero to eliminate the opportunity cost of holding money.
Deflation
A decrease in the general price level of goods and services, often indicating an economic slowdown.
- Fathom the influence of inflation and deflation on economic dynamics, specifically concerning interest rates and the ability to make purchases.
Verified Answer
AP
Andrya PerezJul 26, 2024
Final Answer :
False
Explanation :
The Friedman rule suggests that the optimal nominal interest rate is zero, which implies a very low, but not necessarily negative, inflation rate. Unexpected and large deflation can lead to economic issues such as increased real debt burdens and reduced consumer spending, which are not considered desirable outcomes.
Learning Objectives
- Fathom the influence of inflation and deflation on economic dynamics, specifically concerning interest rates and the ability to make purchases.