Assume That Inflation Rates for the Past 5 Years Have

question 165

Multiple Choice

Assume that inflation rates for the past 5 years have been 1%, 2%, 2.5%, 2%, 2%. The Federal Reserve announces that it is going to decrease the money supply because it is concerned about inflationary pressures in the economy. If people form their expectations _____, then in light of the Fed's announcement, they will expect an inflation rate of _____.

• A) rationally; 2.5%
• B) adaptively; 2%
• C) adaptively; 1.9%
• D) rationally; 4%

---

Definitions:

Disaffirm

The legal right of a party to deny or reject the validity of a contract or agreement.

Trade

The exchange of goods, services, or both between parties, either within a country or between countries, often for money.

Four-Wheel Drive

A vehicle drive system where power is distributed to all four wheels simultaneously, enhancing traction.

Liable in Tort

Legal responsibility arising from a civil case in which harm has been caused to an individual or property.