An economist advising a central bank intending to reduce the inflation rate would likely point out that
A)the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
B)the costs of reducing inflation persist,but they are smaller if the public reduces its inflation expectations.
C)the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
D)the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.

Question

Quizplus · Accepted Answer

Reducing inflation often involves temporary costs, such as reduced output and higher unemployment. However, if the public lowers its inflation expectations, these costs can be minimized, as expectations play a crucial role in economic behavior and policy effectiveness.

An Economist Advising a Central Bank Intending to Reduce the Inflation