Country A is a member of a large monetary union, sharing a central bank that is strongly committed to a specific, low inflation target. Country B is a similar economy but maintains its own currency with a flexible exchange rate and its central bank has no explicit, long-term inflation target to which it must adhere. Based on these policy frameworks, which statement best evaluates the most likely long-term inflation outcome for both countries?

Policy Recommendation for Inflation Control

Inflation Anchors in Different Policy Regimes

Inflation Stability in Different Monetary Regimes

An economy with a flexible exchange rate and no explicit inflation target is more susceptible to a sustained upward trend in inflation primarily because the lack of a firm, long-term policy commitment fails to anchor public expectations, a problem not faced by an economy within a monetary union.

Match each macroeconomic policy regime with its primary characteristic concerning long-term inflation control.

While an economy with a flexible exchange rate and no explicit inflation target is susceptible to a persistent upward drift in inflation, an economy within a monetary union benefits from a firm long-term ________ for inflation provided by the common central bank's target.

An economy operates with a flexible exchange rate and its central bank has no explicit, long-term inflation target. Observers note a persistent upward trend in its inflation rate over several years. Arrange the following statements into the most logical causal sequence that explains this inflationary drift.

Evaluating Long-Term Inflation Risks of Different Policy Regimes

Critique of a Policy Argument on Inflation Control