Most Economists Now Accept the Proposition That

question 95

Multiple Choice

Most economists now accept the proposition that
1) to reduce the long-run rate of inflation there must be a sustained monetary contraction;
2) monetary policy should be aimed at controlling the inflation rate in the long run, with a short -run focus on reducing output gaps;
3) high inflation, even if it is largely expected, can generate significant costs for the economy.

• A) 1 only
• B) 2 only
• C) 3 only
• D) 2 and 3
• E) 1, 2 and 3

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Definitions:

Trade Restrictions

Measures imposed by governments to control the amount of goods and services that can be traded across borders.

Sound Policy

A policy that is well-founded, practical, and likely to produce desired outcomes, often based on evidence and rational analysis.

Rational-Ignorance Effect

The decision by individuals to remain uninformed about an issue because the perceived cost of acquiring the knowledge outweighs the expected benefits.

Externalities

Externalities are consequences of an economic activity experienced by unrelated third parties; they can be either positive (benefits) or negative (costs).