To reduce inflation in an economy at full employment,the central bank must
A) allow an expansionary gap to develop.
B) allow a recessionary gap to develop.
C) not allow any output gaps to develop.
D) allow unemployment to fall below its natural rate.
E) allow output to exceed potential output.

Question

Quizplus · Accepted Answer

To reduce inflation, the central bank should allow a recessionary gap to develop, which means reducing demand to lower price levels, even if it temporarily increases unemployment.

To Reduce Inflation in an Economy at Full Employment,the Central