Which of the Following Is Not an Appropriate Policy for a Central

question 237

Multiple Choice

Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?

• A)increasing the target interest rate on overnight loans
• B)using expansionary monetary policy to drive down interest rates
• C)consistently pursuing policy to promote the credibility of the central bank
• D)explicitly and credibly targeting inflation

---

Definitions:

Social Categorisation

The process of classifying people into groups based on shared characteristics, which can simplify social perception but also contribute to stereotyping.

Relative Homogeneity Effect

The tendency to perceive members of an out-group as more similar to each other than members of the in-group, often leading to stereotyping.

Ingroup Members

Individuals who belong to the same group or category as one perceives oneself, often feeling a sense of solidarity and common identity with them.

Outgroup Members

Individuals who are perceived as not belonging to one's own group, often leading to distinction and bias against them.