The rate of inflation will be permanently reduced provided
A)the rate of monetary growth is permanently reduced.
B)the government balances the budget.
C)people behave rationally.
D)there is a Pigou effect.

Question

Quizplus · Accepted Answer

The rate of inflation is closely tied to the rate of monetary growth. If the rate of monetary growth is permanently reduced, then the rate of inflation can also be permanently reduced. Other factors such as government budget balancing, rational behavior, and the Pigou effect may have some impact on reducing inflation, but they are not as directly tied to inflation as the rate of monetary growth.

The Rate of Inflation Will Be Permanently Reduced Provided