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Suppose that the output gap is zero but policy markets want to reduce the inflation rate from 10% to 5%. Which of these policies seems best?

a. Wage and price controls to counteract their stickiness.
b. No policy action-inflation will eventually fall on its own.
c. Contractionary policies to reduce output at least 5% below potential output.
d. No policy action-inflation will converge to its long-run rate regardless of policy.
e. A convincing declaration of an inflation target so the expected inflation falls to 5%. Could you please describe?

Microeconomics, Economics

  • Category:- Microeconomics
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