​If the Actual Inflation Rate in an Economy Is 6

question 29

Multiple Choice

​If the actual inflation rate in an economy is 6% and the ideal inflation rate is 4%, the inflation gap in the economy is

• A)​­2%.
• B)​­4%.
• C)​2%.
• D)​6%.

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Definitions:

Ronald Coase

A British economist known for his work on transaction costs, property rights, and the theory of the firm.

Negative Externalities

Unintended and unfavourable outcomes or costs imposed on a third party not involved in a transaction or activity.

Taxes

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

Positive Externality

A benefit that affects a party who did not choose to incur that benefit, often leading to underproduction of the good or service in absence of intervention.