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

question 70

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 follows a fixed rule in conducting monetary policy. Initially, households and firms expect high inflation. Following a credible 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:

Consciousness

The condition of being conscious and capable of contemplating one's own being, feelings, ideas, and surroundings.

Dissociate

The process of experiencing a disconnection or lack of continuity between thoughts, memories, surroundings, actions, or identity.

Conscious Mind

The aspect of the mind that is aware of the present moment, responsible for thoughts, feelings, memories, and perceptions that one is actively aware of.

Hidden Observer

A hypothetical part of the mind proposed by Ernest Hilgard to account for phenomena in hypnosis where a subject can observe their pain without feeling distressed.