Assume That There Is a Short-Run Tradeoff Between Inflation and Unemployment

question 58

Multiple Choice

Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires both low inflation and low unemployment, and that the central bank uses discretion in conducting monetary policy. Initially, households and firms expect high inflation. Following an announcement by the central bank of a low-inflation policy, households and firms will ______ the central bank's announcement and ______ their expectations of inflation.

• A) believe; lower
• B) not believe; not change
• C) believe; not change
• D) not believe; lower

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Definitions:

Defensive Reaction

A protective response or behavior triggered by perceived criticism or threat, often resulting in justification or excuses.

Counterattack

An aggressive response or action taken against an initial attack or challenge.

Control Anger

The practice of recognizing signs of anger and managing them in a healthy way to avoid negative outcomes.

Wrongdoers

Individuals who commit illegal or immoral acts.