Assume That Expected Inflation Is Based on the Following: πᵉT

question 11

Multiple Choice

Assume that expected inflation is based on the following: πᵉt = θπt₋₁.If θ = 0,we know that

• A)a reduction in the unemployment rate will have no effect on inflation.
• B)low rates of unemployment will cause steadily increasing rates of inflation.
• C)high rates of unemployment will cause steadily declining rates of inflation.
• D)the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.

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Definitions:

Multiplicative Inverse

Another term for reciprocal; a number which, when multiplied by the original number, yields the multiplicative identity (1).

Negative Integer

An integer less than zero, represented by a negative sign (-) in front of a positive number.

Distributive Property

A property in mathematics that allows you to multiply a sum by multiplying each addend separately and then adding the products.

Exponential Expression

An expression that involves an exponent, indicating how many times the base is multiplied by itself.