Assume That There Is a Short-Run Tradeoff Between Inflation and Unemployment

question 70

Multiple Choice

Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires both low inflation and low unemployment, and that the central bank follows a fixed rule in conducting monetary policy. Initially, households and firms expect high inflation. Following a credible announcement by the central bank of a low-inflation policy, households and firms will ______ the central bank's announcement and ______ their expectations of inflation.

• A) believe; lower
• B) not believe; not change
• C) believe; not change
• D) not believe; lower

---

Definitions:

Minorities

Groups in a population that are smaller in number than the main group and may have different national, religious, linguistic, or cultural origins.

Great Depression

A severe worldwide economic downturn that took place during the 1930s, characterized by high unemployment, deflation, and a fall in consumer spending and investment.

Welfare Payments

Government-provided assistance to individuals and families in need to help cover basic living expenses.

Heritage Of Slavery

The cultural, social, and economic impacts and legacies stemming from the era of slavery in a society, affecting both descendants of enslaved people and broader demographics.