Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to
answer the following questions:
-According to the application, the study by Mark Spiegel concluded that inflation expectations decreased after the Bank of England announced political independence because:
A) the difference between the nominal GDP growth rate and real GDP growth rate decreased.
B) the difference in the interest rates of inflation adjusted bonds and non- inflation adjusted bonds decreased.
C) the difference in the interest rates of inflation adjusted bonds and non- inflation adjusted bonds increased.
D) the difference between nominal and real GDP decreased.

Question

Quizplus · Accepted Answer

The study by Mark Spiegel concluded that inflation expectations decreased after the Bank of England announced political independence because the difference in the interest rates of inflation-adjusted bonds and non-inflation-adjusted bonds decreased. This suggests that investors had higher confidence in the Bank of England's ability to control inflation, leading to lower inflation expectations.