The inflation rate is 12 percent, and the central bank is considering slowing the rate of money growth to reduce inflation to 8 percent. Economist Eric believes that expectations are very sluggish, whereas economist Kenji believes that expectations of inflation change quickly in response to new policies. True or False: Economist Eric is more likely to favor using contractionary policy to reduce inflation than economist Kenji. True False

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Luis

Business

22 October, 16:08

The inflation rate is 12 percent, and the central bank is considering slowing the rate of money growth to reduce inflation to 8 percent. Economist Eric believes that expectations are very sluggish, whereas economist Kenji believes that expectations of inflation change quickly in response to new policies. True or False: Economist Eric is more likely to favor using contractionary policy to reduce inflation than economist Kenji. True False

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Braxton Barrera · Answer 1

False

Explanation:

economist Kenji supports contractionary monetary policy because he believes that expectations adjust quickly in response to changes in policy and the efforts made by fed (an decrease in government spending and/or an increase in taxes) will be worth and the costs of reducing inflation will be less.

Whereas economist Eric, thinks that change in money supply is not a good idea to reduce inflation as it will work very slowly.