Assume That the Expected Rate of Inflation Is a Function

question 24

Multiple Choice

Assume that the expected rate of inflation is a function of past inflation and that the unemployment rate has been equal to the natural rate of unemployment for some time. Given this information, we know that:

• A) the rate of inflation will approximately be zero.
• B) the rate of inflation should be approximately equal to the natural rate of unemployment.
• C) the rate of inflation should steadily increase over time.
• D) the rate of inflation should steadily decrease over time.
• E) the rate of inflation should neither increase nor decrease.

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Definitions:

Optimal Point

The most favorable position or condition that yields the maximum benefit or efficiency in a given situation, such as in investment or production.

Credit Policy

Rules a business adheres to for assessing a customer's eligibility for credit and the stipulations under which it is offered.

Opportunity Cost

The most valuable alternative that is given up if a particular investment is undertaken.

Incremental Cost

The additional cost incurred to produce one more unit of a product or service.