According to the Theory of Rational Expectations

question 28

Multiple Choice

According to the theory of rational expectations,

• A) the Phillips curve is upward sloping in the short run and downward sloping in the long run.
• B) both in the short and long run, the Phillips curve is horizontal.
• C) the sacrifice ratio could be zero because economic agents will very quickly adjust their inflation expectations if they believe policy makers will succeed in reducing inflation.
• D) the sacrifice ratio is very high because rational workers will work less if their wages do not rise as quickly as they expect.

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