According to Rational Expectations Theory

question 96

Multiple Choice

According to rational expectations theory:

• A)​a large reduction in unemployment can be achieved with a relatively small increase in inflation.
• B)​people are not easily fooled by changes in government fiscal policy.
• C)​inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time.
• D)​the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate.

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Definitions:

MC Of Reducing

The marginal cost associated with reducing an output or activity, usually referring to cutting down on production or operational processes.

Marginal Social Benefit

The additional benefit to society from consuming or producing one more unit of a good or service.

Marginal Social Cost

The extra expense borne by the entire society resulting from the manufacture of an additional unit of a product or service.

Trade Permits

Legal documents or licenses required to engage in certain types of trade or business, often used to regulate or protect industries.