If a central bank is to successfully end a sustained inflation, it is essential that it

Question

Quizplus · Accepted Answer

Changing people's expectations of future inflation is essential to successfully end a sustained inflation. If people come to expect that prices will continue to rise, they may demand higher wages or businesses may try to increase their prices, fueling further inflation. By changing expectations, the central bank can break this cycle and pave the way for lower inflation. Choices A, B, and D are not necessarily achievable or desirable in all cases, and maintaining a constant sacrifice ratio (the short-run cost of reducing inflation) may not be feasible or necessary in all circumstances.

If a Central Bank Is to Successfully End a Sustained