Finance, Do you agree that a 2.0% annual decline in the value of U.S. dollars is good for the economy?

Do you agree that a 2.0% annual decline in the value of U.S. dollars is good for the economy? Whether you agree or not, I’d like to hear your ideas on why you hold the opinion that you do.

First, a few words about the Analytical Questions. These questions are exercises, not tests. You are required to answer the questions, but your answers will not be graded. I will, however, read all submissions, and give you credit for completing the assignment. There are no “correct” answers to the questions. Instead, I’ll look for evidence that you have prepared a thoughtful response. The idea is to encourage you to do some analytical thinking, and to put your ideas into writing. All submissions must be in hard copy form submitted to me in class or placed in my mailbox. Email submissions will not be accepted. It would be very unusual for a submission to be more than one page long, in most cases a few sentences may be all that you need. Your on-time submission will be appreciated, and may prove helpful to me in leading class discussion, but I will accept late submissions for as much as a week after the due date.

THE QUESTION:

One of the objectives of the Federal Reserve Bank (Fed) is to protect the integrity of the money supply. One of the ways the Fed does that is to monitor the rate of inflation monthly. The Fed cannot control the rate of inflation (or deflation), but its monetary policy decisions can influence that rate in one direction or the other. I continually receive consistent reports from multiple sources that the Fed believes monetary inflation at the rate of about 2.0% annually is good for the economy, and therefore sets 2.0% as its guideline target. This guideline means that the Fed thinks it is good for the economy if the value of the dollar declines by 2.0% every year. While I have heard numerous pronouncements to this effect from the Fed, I have never heard any explanation for why that should be so!  Here’s Analytical Question #1:

Do you agree that a 2.0% annual decline in the value of U.S. dollars is good for the economy? Whether you agree or not, I’d like to hear your ideas on why you hold the opinion that you do.

You need not present evidence that your opinion is correct, just give me a coherent explanation for why you hold it. Possibly we can think of ways to empirically test it later.