Studying Alternative Theories of How People Form Expectations Is Particularly

question 113

Multiple Choice

Studying alternative theories of how people form expectations is particularly relevant to monetary policy because:

• A) if people fully expect inflation to occur, the effects of monetary policy are more widespread.
• B) monetary policy can only have real effects on the economy if people fully expect inflation.
• C) unexpected inflation cause prices to be flexible.
• D) the effects of expected inflation are completely different from the effects of unexpected inflation.
• E) expected inflation cause prices to become sticky.

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Definitions:

Government Transfers

Payments made by the government to individuals, households, or companies which do not require repayment, including welfare benefits, subsidies, and grants.

Income Inequality

The unequal distribution of income within a population, leading to economic disparity between the richest and poorest individuals.

Taxes

Compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization.

Income Inequality

The unequal distribution of income among members of a society, where wealth is concentrated in the hands of a few while a significant portion of the population lives in poverty.