Suppose 15 Percent Inflation Becomes the Annual Norm

question 56

Multiple Choice

Suppose 15 percent inflation becomes the annual norm. The net effect of this inflation, given rational expectations and staggered, long-term contracts, is

• A) a reduction in unemployment below the natural rate as stability in relative prices became part of the inflationary norm.
• B) an increase in unemployment above the natural rate as double-digit inflation caused employers to become increasingly nervous about future economic vitality.
• C) a convergence of unemployment to the natural rate.
• D) any of the above depending on circumstance.
• E) cannot tell from the information provided.

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Definitions:

Negative Feelings

This term encompasses a range of emotions such as sadness, anger, and fear, which are often unpleasant and associated with negative thoughts and experiences.

Subjective Well-Being

Subjective Well-Being is the self-perceived feeling of happiness or satisfaction with one’s life. It is a key component of positive psychology.

Work Satisfaction

The contentment a person feels regarding their job and its various aspects.