Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Question

Quizplus · Accepted Answer

Consistently pursuing policy to promote the credibility of the central bank is an appropriate policy for a central bank to follow if the economy is plagued with deflation. This can help build trust in the central bank and its policies, which can facilitate the transmission of monetary policy and help restore inflation expectations. Increasing the interest rate (A) or using contractionary monetary policy (B) would only exacerbate the deflationary pressures, while gradually raising the required reserve rate (D) is unlikely to be effective in addressing deflation.

Which of the Following Is an Appropriate Policy for a Central