In domestic economies, inflation bias often exists, which reduces the power of the central bank to use monetary policy to stimulate economic activity. If an anti-inflation nation such as Germany enters into a monetary union with such nations, what remedy is there for this problem?
A) Germany would have to conform with an activist monetary policy that gave preference to economic performance.
B) Germany could insist on the central bank being insulated from politics and democratic control.
C) Germany could insist that all central bank policies be reviewed by the Parliament.
D) Germany would allow nations into the monetary union, even with their inflation bias, because that would disappear quickly on joining the Eurozone.
Ans: B) Germany could insist on the central bank being insulated from politics and democratic control.
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