As Incorrectly Low Inflation Expectations Catch Up with the Higher

question 40

Multiple Choice

As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts __________ and the short-run Phillips curve shifts __________.

• A) leftward; downward
• B) rightward; upward
• C) leftward; upward
• D) rightward; downward

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Definitions:

Market Yield

Market yield refers to the current rate of return anticipated on a bond if held to maturity, factoring in both its price and interest payouts compared to the market's interest rates.

Interest-Rate Sensitivity

The degree to which the price of an investment, often a bond, responds to changes in interest rates.

Bond Prices

The market value of bonds, which inversely fluctuates with interest rates: when rates go up, bond prices fall, and vice versa.

Coupon Rate

The yearly interest rate yielded by a bond, shown as a percent of its nominal value.