Economists argue that central banks that are credible in their fight against inflation can more easily:
A) lower inflation without creating extra unemployment.
B) lead the economy into a depression.
C) buy bonds.
D) increase the money supply.

Question

Quizplus · Accepted Answer

A central bank that is credible in its fight against inflation is perceived as more capable of keeping inflation in check. As a result, when it raises interest rates to fight inflation, people and businesses are more likely to believe that the rate hikes are necessary and will persist until inflation falls. This belief supports the central bank's efforts to reduce inflation without creating additional unemployment.

Economists Argue That Central Banks That Are Credible in Their