If People's Expectations of Inflation Are Formed Rationally Rather Than

question 52

Multiple Choice

If people's expectations of inflation are formed rationally rather than based on adaptive expectations and if policymakers make a credible policy move to reduce inflation, then the costs of reducing inflation will be ______ traditional estimates of the sacrifice ratio.

• A) much higher than
• B) much lower than
• C) exactly equal to
• D) approximately two percent greater than

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Definitions:

CAN-SPAM Act

A law that sets the rules for commercial email, establishes requirements for commercial messages, gives recipients the right to have emails stopped from being sent to them, and spells out tough penalties for violations.

RICO

The Racketeer Influenced and Corrupt Organizations Act, a U.S. federal law designed to combat organized crime by allowing extended penalties for acts performed as part of a criminal organization.

OECD Convention

An international agreement established by the Organisation for Economic Co-operation and Development aimed at combating bribery of foreign public officials in business transactions.

Price Fixing

An agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.