An unexpected feature of Chile's stabilization program in the 1970s was that:
A) export growth was weak after the real exchange rate appreciated.
B) the economy stabilized without requiring fiscal austerity.
C) the market's self-correcting mechanisms worked smoothly and quickly to eliminate the imbalances.
D) inflation stayed high despite tight monetary policy and a big drop in the fiscal deficit.

Question

Quizplus · Accepted Answer

Chile's stabilization program in the 1970s, aimed at controlling hyperinflation and stabilizing the economy, included tight monetary policy and significant reductions in the fiscal deficit. Despite these measures, an unexpected outcome was that inflation remained high for a longer period than anticipated, challenging the conventional wisdom that such policies would quickly curb inflation. This reflects the complexity of economic stabilization efforts and the influence of other factors, such as expectations, wage dynamics, and possibly the initial conditions of hyperinflation, which can delay the effectiveness of policy measures.

An Unexpected Feature of Chile's Stabilization Program in the 1970s