If the Fed is credible or believable in its desire to fight inflation, it can deter the private sector:
A) from taking aggressive actions that drive prices down.
B) from taking aggressive actions that drive up prices.
C) from lowering real wages.
D) from developing rational expectations about inflation.

Question

Quizplus · Accepted Answer

If the Fed is credible in its desire to fight inflation, the private sector will be deterred from taking aggressive actions that drive up prices. This is because they will believe that the Fed will take necessary actions to prevent inflation from getting out of control.

If the Fed Is Credible or Believable in Its Desire