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:

Profit-Sharing Plans

Employee benefit plans under which a company shares a portion of its profits with its employees, usually distributed based on set criteria such as seniority or salary level.

Genuine Ownership

The authentic and rightful possession of an item or property, confirmed through legal or official means.

Merit Raise

A pay increase given to individual workers according to an evaluation of their performance.

Performance Evaluation

The process of assessing an employee's job performance against pre-determined standards or objectives.