In the new classical framework, inflation can be lowered with a credible commitment by monetary policymakers without any decrease in output.

Question

Quizplus · Accepted Answer

In the new classical framework, if monetary policymakers make a credible commitment to reducing inflation, and the public believes this commitment, inflation expectations adjust accordingly. This can lead to a reduction in inflation without a decrease in output, as the anticipated policy changes are incorporated into wage and price setting from the outset, avoiding the need for an actual increase in unemployment to reduce inflation.

In the New Classical Framework, Inflation Can Be Lowered with a Credible