If the public forms their expectations rationally, a credible central bank will
A) tend to encourage wage increases.
B) tend to deter wage increases.
C) have no influence over wages.
D) ignore the public's beliefs.

Question

Quizplus · Accepted Answer

If the public forms their expectations rationally, a credible central bank will tend to deter wage increases by signaling that they will take action to prevent inflation. This is because inflation erodes the value of money and could harm the economy in the long run. A credible central bank will want to maintain low and stable inflation, and deterring wage increases is one way to achieve this.

If the Public Forms Their Expectations Rationally, a Credible Central