For an economy to eliminate inflation once people have begun to anticipate inflation,
A)all of the following could occur
B)credibility of policy is crucial to the cost of lowering inflation
C)actual inflation must be less than anticipated inflation
D)cold-turkey solutions will reduce inflation relatively rapidly
E)a recession will have to be endured until expectations have been reduced

Question

Quizplus · Accepted Answer

To eliminate inflation once people have begun to anticipate it, it is necessary to adhere to a combination of policies that would affect different aspects of the economy such as reducing government spending, increasing taxes, increasing interest rates, and reducing the money supply. Cold-turkey solutions or enduring a recession aren't the only solutions, and actual inflation should be less than anticipated inflation to restore credibility. Therefore, all of the above could occur, and credibility of policy is crucial to the cost of lowering inflation.

For an Economy to Eliminate Inflation Once People Have Begun