A "credible announced" inflation reduction policy is one that
A) has monetary policy slowly increasing the money supply.
B) the public is told about after the policy change has occurred.
C) the public is told about before policy changes have occurred and that is believed by the public.
D) depends only on fiscal policy changes that have been publicly debated and implemented.
E) the public is never told about.

Question

Quizplus · Accepted Answer

A credible announced inflation reduction policy is one that is transparent and communicated clearly to the public before the policy changes have occurred. This creates a level of trust between the public and policymakers, which is necessary for the policy to be effective. If the public believes in the policy, they are more likely to adjust their behavior accordingly, such as reducing wage demands, resulting in lower inflation. Monetary policy increasing the money supply (A) may not be enough to reduce inflation if the public does not believe in the policy. The public being told about a policy change after it has occurred (B) and the public never being told (E) both lack the transparency necessary for a credible policy. Fiscal policy changes (D) can be a part of a credible inflation reduction policy, but they are not the only factor.

A "Credible Announced" Inflation Reduction Policy Is One That