First, what can be done to increase central bank credibility? Second, why is central bank credibility important?

What will be an ideal response?

Central bank credibility can be achieved by: (1 ) imposing rules on the central bank; (2 ) making the central bank independent (of political pressure); and (3 ) choosing a conservative central banker. Central bank credibility is important to minimize the chances of occurrence of the time inconsistency problem. Also, whenever a central bank implements a disinflationary policy, the output effects will be smaller the more credible is the central bank.

Economics

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By fixing its exchange rate, China is most likely

A) achieving a low inflation rate by anchoring to the U.S. inflation rate. B) keeping its export prices low. C) making it easier to compete in world markets. D) Both B and C.

Economics

If a market produces a level of output that exceeds the competitive equilibrium output, then

A) social welfare will be higher. B) producer surplus will be higher. C) marginal cost will exceed price. D) All of the above.

Economics