Use the Following to Answer Question 118

question 185

Multiple Choice

Use the following to answer question 118:
-(Figure: Expected Inflation and the Short-Run Phillips Curve) SRPC₀ is the Phillips curve with an expected inflation rate of zero; SRPC₂ is the Phillips curve with an expected inflation rate of 2%. Refer to Figure: Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of 2% future inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

• A) fall to zero.
• B) not change.
• C) rise to 2%.
• D) rise to 4%.

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Definitions:

Reduction

The act of decreasing or lowering in amount, quantity, or degree.

Amortized Cost

Amortized cost is an accounting methodology for valuing certain financial assets or liabilities, considering both the initial principal and the interest accrued over time.

Accounting

The systematic process of recording, summarizing, and analyzing financial transactions of a business.

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Investments in a small quantity of stock, potentially in smaller or more speculative companies, as part of a diversified portfolio.