An effective way to restore credibility to monetary authorities after a period of hyperinflation is
A) the introduction of a new monetary unit.
B) the introduction of wage and price controls.
C) a reduction in bank reserve requirements.
D) the centralization of monetary and fiscal policy under a single governmental unit.

Question

Quizplus · Accepted Answer

Introducing a new monetary unit can help restore credibility to monetary authorities after hyperinflation as it signals a new beginning and puts an end to the old regime that allowed hyperinflation to occur. It also provides an opportunity for the authorities to introduce structural reforms and stabilize the economy. This was the case in countries such as Argentina, Brazil, and Peru, which successfully restored credibility by introducing new currencies after periods of hyperinflation. Therefore, option A is the best choice. B and C are not effective in restoring credibility as they involve government intervention in the market, which can lead to unintended consequences and further erode trust in the authorities. D is also not effective as centralizing monetary and fiscal policy can limit checks and balances and lead to greater government control over the economy, which can undermine credibility in the long run.

An Effective Way to Restore Credibility to Monetary Authorities After