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

question 57

Multiple Choice

Given an expectations-augmented Phillips curve and a policy designed to maintain actual GDP higher than its potential indefinitely,

• A) any set of inflationary expectations other than zero produces constant, positive inflation and unemployment below the natural rate.
• B) any set of inflationary expectations other than zero produces accelerating prices with unemployment above the natural rate.
• C) any set of inflationary expectations produces accelerating prices with unemployment below the natural rate.
• D) any set of inflationary expectations other than zero produces decelerating inflation with unemployment below the natural rate.
• E) none of the above.

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Definitions:

Classical Economists

A group of economists in the late 18th and early 19th centuries who believed in the idea of self-regulating markets, emphasizing free competition and minimal government intervention.

Full Employment

A state in an economy where all existing labor forces are deployed in the utmost efficient manner.

Equilibrium

A state in economics where supply equals demand, leading to a stable situation where there is no inherent tendency for change.

Fiscal Policy

The use of government spending and taxation to influence the economy, including its growth rate, inflation, and unemployment levels.