Suppose the Output Gap Is Zero,and Policy Makers Wish to Reduce

Multiple Choice

Suppose the output gap is zero,and policy makers wish to reduce the inflation rate from 10 percent to 5 percent.Which of these policies seems best?

A) contractionary policies to reduce output at least 5 percent below potential output
B) a convincing declaration of the inflation rate target,so that expected inflation falls to 5 percent
C) no policy action;inflation will fall on its own,eventually
D) no policy action;inflation will converge to its long-run rate,regardless of policy
E) price and wage controls to counteract their stickiness