The Friedman-Phelps (Natural Rate) Hypothesis Made the Strong Prediction That

question 269

Multiple Choice

The Friedman-Phelps (natural rate) hypothesis made the strong prediction that:

• A) once inflation gets embedded in people's expectations, unemployment and inflation will have a trade-off.
• B) the unemployment and inflation trade-off will not survive if inflation gets embedded in people's expectations.
• C) there will always be an unemployment and inflation trade-off.
• D) the unemployment and inflation trade-off is a myth.

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Definitions:

Demand and Supply

Fundamental economic concepts representing the quantity of a good or service consumers are willing and able to purchase and the quantity offered by sellers.

Inferior Good

An inferior good is a type of good whose demand decreases when consumer income rises, unlike normal goods, for which the opposite is observed.

Income

Earnings received by an individual or entity in exchange for labor or investment, typically expressed in monetary terms.

Demand Curve

A pictorial representation that maps out the correlation between a good's price and its demand over an allotted time.