The Three Figures Below Show the Phases of a Disinflation

question 90

Multiple Choice

The three figures below show the phases of a disinflation.In part (i) ,the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 Refer to Figure 29-4,part (iii) .Consider the recovery phase of the disinflation process.The disadvantage of implementing an expansionary monetary policy to shift equilibrium from E₃ to E₄ is

• A)the likelihood of entering a deflationary phase.
• B)that since expected inflation has been eliminated,real wages will not adjust to any further AD or AS shocks.
• C)a falling price level.
• D)firms and consumers will no longer respond to decreases in interest rates.
• E)the danger of reviving expected inflation,and having to repeat the phases of the disinflation.

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Definitions:

Refractory Periods

The time period immediately following an action potential during which a neuron is unable to fire another impulse.

Phrenology

A now-discredited theory which postulated that bumps on the skull could predict mental traits and character.

Myelin Sheath

A fatty tissue layer segmentally encasing the axons of some neurons; enables vastly greater transmission speed as neural impulses hop from one node to the next.

Synaptic Gaps

The tiny spaces between neurons, across which neurotransmitters travel to transmit messages from one neuron to another.