An economist would be more likely to argue against reducing inflation if she thought that
A)the central bank lacked credibility and if bonds were usually not indexed for inflation.
B)the central bank lacked credibility and if bonds were usually indexed for inflation.
C)the central bank had credibility and if bonds were usually not indexed for inflation.
D)the central bank had credibility and if bonds were usually indexed for inflation.

Question

Quizplus · Accepted Answer

If the central bank lacks credibility, reducing inflation may not be effective as market expectations of future inflation may remain high, leading to persistent inflationary pressures. Moreover, if bonds are not indexed for inflation, reducing inflation can be costly to investors who may need to sell their bonds at a discount. Therefore, an economist would be more likely to argue against reducing inflation if the central bank lacks credibility and bonds are usually not indexed for inflation.

An Economist Would Be More Likely to Argue Against Reducing