Consider an Expectations-Augmented Phillips Curve with the Expected Rate of Inflation

question 5

Multiple Choice

Consider an expectations-augmented Phillips curve with the expected rate of inflation set equal to last year's rate. One way for inflation to come in below expectations for the current year is for

• A) the economy to run above potential, so that greater supply can lower prices.
• B) the economy to run at potential, so that planned investment can cause the economy to grow out of the inflation.
• C) the economy to run a recession, so that unemployment and output can fall short of potential and put downward pressure on prices.
• D) the government to impose strict wage and price controls limiting inflation to 50 percent of last year's rate.
• E) c but only if accompanied by d.

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Definitions:

SRS

An acronym for Simple Random Sampling, a statistical method where each member of a population has an equal probability of being included in the sample.

Null Hypothesis

A statement or assumption that there is no effect or no difference, used as a starting point for statistical significance testing.

Significance Test

A statistical method used to determine if there is a significant difference between groups or conditions, typically by comparing p-values to predefined significance levels.

Outliers

Observations in a dataset that are significantly different from the other data points, often indicating measurement error, variability in measurement, or a novel discovery.