Recall the Application about the increase in political independence for the Bank of England and its effect on anticipated inflation to answer the following question(s). In 1997, the Bank of England became more independent from the government. Although the government still retained the authority to set overall policy goals, the Bank of England was free to pursue its policy goals without direct political control. Federal Reserve economist Mark Spiegel compared interest rates on two different types of long-term bonds, those that are automatically adjusted for inflation and those that are not, to see how the British bond market reacted to this policy change.
-If a central bank is credible in its desire to fight inflation, it can deter the private sector from taking aggressive actions that drive up prices.

Question

Quizplus · Accepted Answer

The statement is true. When a central bank is credible in its commitment to fight inflation, the private sector is less likely to take aggressive actions, such as increasing wages and prices, since they know the central bank will respond with appropriate monetary policy to address inflationary pressures. This helps to achieve the central bank's goal of maintaining price stability.

Recall the Application About the Increase in Political Independence for the Bank