Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Question

Quizplus · Accepted Answer

Consistently pursuing policy to promote the credibility of the central bank would be an appropriate policy for a central bank to follow if the economy is plagued with deflation. Deflation can lead to a negative spiral of falling prices and declining economic activity, and it is important for the central bank to maintain credibility and confidence in its ability to manage the economy. A consistent policy of credibility and transparency can help to anchor expectations and reduce uncertainty, which can help to mitigate the harmful effects of deflation. The other options, such as raising interest rates or reserve requirements, could exacerbate the deflationary pressures on the economy and make the situation worse.

Which of the Following Is an Appropriate Policy for a Central