Suppose an Econometrician Discovers That During the Past Decade,lower Unemployment

question 19

Essay

Suppose an econometrician discovers that during the past decade,lower unemployment rates have always been accompanied by higher inflation rates.When asked how to reduce unemployment,the econometrician recommends the policy of increasing the money supply to trigger more inflation.Explain why this policy may fail to work in a world where people have rational expectations.

---

Definitions:

Ammonia

A colorless gas with a characteristic pungent smell, consisting of nitrogen and hydrogen (NH3), used in the manufacture of fertilizers, explosives, and cleaning products.

Acupuncture

A form of alternative medicine and a key component of traditional Chinese medicine involving the insertion of thin needles into the body at specific points to alleviate pain and treat various health conditions.

Phantom Limb Sensations

Feelings that an amputated or missing limb is still attached and functioning, often accompanied by pain or discomfort.

Sensory Input

Information gathered by sensory receptors about internal and external changes.