Suppose That During the Last Five Years the Rate of Inflation

question 91

Multiple Choice

Suppose that during the last five years the rate of inflation was 3 percent each year and the money supply had grown 6 percent annually during the period. However, during the last nine months, the Fed has expanded bank reserves more rapidly and the money supply has been growing at a 12 percent annual rate. As a result, the expected inflation rate for the next period will be

• A) higher than 3 percent under the rational expectations hypothesis.
• B) 3 percent under the adaptive expectations hypothesis.
• C) higher than 3 percent under both the adaptive and rational expectations hypotheses.
• D) both a and b.

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Definitions:

Brown-Peterson Task

A cognitive task used to study short-term memory by distracting participants with a task immediately after they are given information to remember, therefore testing their ability to maintain it in memory.

Short-Term Memory

The ability to keep a limited amount of data in an immediately accessible condition for a brief duration.

Recall Performance

The ability to remember and retrieve information that has been previously learned or experienced.

Baddeley's Model

A framework explaining human memory wherein it's divided into three main components: the central executive, the phonological loop, and the visuospatial sketchpad, with a later addition of the episodic buffer.