Low, stable inflation helps the economy operate efficiently
When inflation is low and stable, individuals can hold money without having to worry that high inflation will rapidly erode their purchasing power.
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Low, stable inflation provides individuals with more monetary stability and purchasing power. It also helps the economy move towards stability, thereby encouraging individuals to save and invest. According to economist Richard G. Anderson, price stability is "a prerequisite for attaining maximum sustainable economic growth." Having low, stable inflation reduces economic volatility, and its effects are experienced in the United States and abroad. With economic growth and a reduction in economic volatility, businesses and households can make more accurate longer-run financial decisions about borrowing, lending, saving, and investing. Anderson also claims that sustained low inflation is necessary for an economy to achieve long-run economic growth. By having low, stable inflation, longer-term interest rates are more likely to be moderate.
[P1] A 2% inflation rate causes lower levels of inflation and economic sustainability. [P2] With more stability, businesses and central banks and look into the future economic landscape more accurately, minimizing the risk of uncertainty and downturn in both the near and far future. [P3] Therefore, a 2% inflation rate should be implemented within a modern economy.