Some Economists Argue That Simply and Suddenly Reducing Money Supply

Essay

Some economists argue that simply and suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real reform, people expect that the government will soon start printing more money again to pay for its expenditures, and the promise to fight inflation will not be credible. Explain the importance of an inflation-reduction policy that is announced ahead of time and is credible.