Some Countries Have Had High Inflation for a Long Time

question 89

Multiple Choice

Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which statement, at least in theory, could explain why some countries would continue to have high inflation?

• A) High-inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
• B) Inflation reduction works best when it is unexpected, and people in high-inflation countries would quickly anticipate any change in monetary policy.
• C) In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs.
• D) Persistently low inflation has costs in terms of high unemployment.

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Definitions:

Use of Threats

A negotiation or influence strategy involving the signalling of intent to inflict harm or loss on another party if one's demands are not met.

Effective

Producing a decided, decisive, or desired effect.

Legitimate Power

A form of authority based on formal position or role within an organization or society, recognized and accepted by others as rightful.

Reactivity

The tendency of a person or system to react to stimuli or changes in the environment.