A Central Bank Can Reduce Inflation by Reducing Money Supply

question 141

True/False

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

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Definitions:

GDP

Gross Domestic Product, a measure of the economic performance of a country, calculated by adding up all market values of goods and services produced within the country in a year.

Private Capital Flows

Financial resources transferred between countries by private sector entities through direct investments, portfolio investments, and other forms of capital movements.

Direct Foreign Investment

An individual or company from one nation investing in business interests or assets in a different country, which includes starting up operations or buying business holdings.

International Finance Corporation

A member of the World Bank Group focused on private-sector development in less developed countries.