If the price level depends on both the current money supply and future expected money supplies, in order to stop a hyperinflation, a central bank may try to establish credibility by:
A) achieving increased political independence from the government.
B) increasing revenue from seigniorage.
C) encouraging increased government spending and tax cuts.
D) undertaking larger open-market purchases.

Question

Quizplus · Accepted Answer

In order to establish credibility and signal a commitment to reducing inflation, a central bank may need to achieve increased political independence from the government. This means that the central bank needs to have the power to pursue monetary policy goals that are independent of the priorities of the government or politicians in power. This can help to reassure the public and investors that the central bank is committed to controlling inflation and maintaining stability in the economy. In contrast, increasing revenue from seigniorage, encouraging increased government spending and tax cuts, and undertaking larger open-market purchases may not necessarily build credibility or reduce inflation in the long run.

If the Price Level Depends on Both the Current Money