Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to
answer the following questions:
-According to the application, independence from political influence reinforces central bank credibility because:
A) it allows the central bank to aim for zero inflation.
B) it makes central banks more believable in their commitment to fighting inflation.
C) it increases the central bank's capability to stabilize real GDP.
D) all of the above

Question

Quizplus · Accepted Answer

Independence from political influence makes central banks more believable in their commitment to fighting inflation, which in turn reinforces their credibility. While A and C are potential benefits of central bank independence, they are not directly related to the reinforcement of credibility.