Suppose the output gap is zero, and policy makers wish to reduce the i

Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best?

A) contractionary policies to reduce output at least 5 percent below potential output
B) a convincing declaration of the inflation rate target, so that expected inflation falls to 5 percent
C) no policy action; inflation will fall on its own, eventually
D) no policy action; inflation will converge to its long-run rate, regardless of policy
E) price and wage controls to counteract their stickiness

ANSWER

B