A central bank strongly committed to fighting inflation will risk increasing unemployment rather than increasing the money supply.

Question

Quizplus · Accepted Answer

This is true because in order to fight inflation, the central bank may need to tighten monetary policy, which can lead to a decrease in aggregate demand and therefore an increase in unemployment. This is because higher interest rates and more limited access to credit can discourage consumer and business spending, leading to lower demand for goods and services and ultimately, job losses.

A Central Bank Strongly Committed to Fighting Inflation Will Risk