Given an Expectations-Augmented Phillips Curve and a Policy Designed to Maintain

question 4

Multiple Choice

Given an expectations-augmented Phillips curve and a policy designed to maintain GDP above its potential indefinitely, what sort of expectations model is required to keep inflation from accelerating year after year?

• A) The persistent expectation that inflation will continue to be zero
• B) Expectations based on the inflationary experience of the past 20 years
• C) Expectations based on the inflationary experience of only the very recent past
• D) Expectations based on completely accurate information
• E) No expectations model produces stable prices with actual GDP consistently higher than its potential.

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