The Arguments of Friedman and Phelps Would Suggest That Other

question 94

Multiple Choice

The arguments of Friedman and Phelps would suggest that other things the same a country that pursues a disinflationary policy

• A)should not see an increase in the unemployment rate even in the short run.
• B)will having rising unemployment for a while, but then return to the natural rate of unemployment.
• C)will have a permanently higher unemployment rate.
• D)None of the above is suggested by the arguments of Friedman and Phelps.

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Definitions:

Exchange Rates

The rate at which one currency can be exchanged for another.

Interest Rates

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, per period.

Inflation

The speed at which the overall price level of goods and services increases, diminishing the buying power.

Financial Distress Costs

The direct and indirect costs associated with going bankrupt or experiencing financial distress.