When an Anti-Inflation Policy Is Credible

question 2

Multiple Choice

When an anti-inflation policy is credible,

• A)a new long-run equilibrium at a lower inflation rate is reached much faster
• B)the sacrifice ratio is zero
• C)the Fed can cheat a little by letting money supply grow to avoid a recession
• D)real wages immediately adjust and thus no increase in the rate of unemployment is needed to reduce inflation
• E)there is no need for workers to adjust their wage demands, so the economy will adjust more easily to a new long-run equilibrium

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Definitions:

Posttraumatic Stress Disorder

A psychiatric disorder that can occur in people who have experienced or witnessed a traumatic event, characterized by severe anxiety, flashbacks, and uncontrollable thoughts about the event.

General Adaptation Syndrome

A three-stage response (alarm, resistance, exhaustion) that the body goes through in reaction to prolonged stress.

Distress

Emotional suffering or pain often caused by stress, anxiety, or trauma, which can negatively impact an individual's mental and physical health.

Excessive

Going beyond what is normal, usual, or necessary; characterized by overabundance.