To reduce inflation in an economy at full employment,the central bank must set the
A) real interest rate at a level lower than normal.
B) real interest rate at a level higher than normal.
C) inflation rate at a level lower than normal.
D) inflation rate at a level higher than normal.
E) GDP growth rate at a level higher than normal.

Question

Quizplus · Accepted Answer

To reduce inflation, the central bank must increase the real interest rate, which means setting it at a level higher than normal. This would discourage borrowing and spending, leading to lower demand and lower prices, ultimately reducing inflation.

To Reduce Inflation in an Economy at Full Employment,the Central