If the Fed wants to lower everyone's expected inflation rate, one alternative is to suddenly reduce the inflation rate; however
A) this policy seldom works in reality.
B) a recession usually results.
C) the short-run Phillips curve tradeoff is replaced by the long-run Phillips curve tradeoff.
D) potential GDP usually decreases.
E) such a policy is illegal in the United States.

Question

Quizplus · Accepted Answer

Reducing the inflation rate suddenly can lead to a recession because it often involves tightening monetary policy, which can decrease aggregate demand and slow down economic growth.

If the Fed Wants to Lower Everyone's Expected Inflation Rate