Recall the Application About the Increase in Political Independence for the Bank

question 1

Multiple Choice

Recall the Application about the increase in political independence for the Bank of England and its effect on anticipated inflation to answer the following question(s) . In 1997, the Bank of England became more independent from the government. Although the government still retained the authority to set overall policy goals, the Bank of England was free to pursue its policy goals without direct political control. Federal Reserve economist Mark Spiegel compared interest rates on two different types of long-term bonds, those that are automatically adjusted for inflation and those that are not, to see how the British bond market reacted to this policy change.
-In this Application, according to some economists, the move toward more political independence for the Bank of England would tend to

• A) lend to its credibility in fighting inflation.
• B) reduce anticipated inflation but increase unanticipated inflation.
• C) make it less credible with respect to conducting monetary policy.
• D) decrease the need and accuracy of rational expectations.

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