Disinflation is more painful when the central bank:
A) increases the rate of inflation.
B) runs out of money.
C) is credible.
D) is not credible.

Question

Quizplus · Accepted Answer

Disinflation is more painful when the central bank is not credible because people and businesses are less likely to believe that the central bank will successfully reduce inflation. This disbelief can lead to less cooperation from the public in terms of adjusting wage demands and prices, making the process of reducing inflation more difficult and potentially requiring more stringent measures.

Disinflation Is More Painful When the Central Bank