In order to reduce the expected inflation rate at least cost in terms of higher unemployment, the Fed could
A) suddenly reduce the growth rate of the money supply.
B) appeal to everyone's since of patriotic duty to reduce their wage demands.
C) announce a credible inflation reduction policy.
D) make policy according to the short-run Phillips curve tradeoff.
E) surprise everyone with a slowdown in the inflation rate.

Question

Quizplus · Accepted Answer

Announcing a credible inflation reduction policy can help to anchor inflation expectations and create a belief among businesses and consumers that the Fed is committed to reducing inflation. This would reduce inflationary pressure without causing a significant increase in unemployment, as businesses and consumers adjust their behavior accordingly. The other options are either not effective or may result in a significant increase in unemployment.

In Order to Reduce the Expected Inflation Rate at Least