To Avoid Accelerating Inflation Over Time, a Government's Policy Should

question 217

Multiple Choice

To avoid accelerating inflation over time, a government's policy should _____ to trade off lower unemployment for higher inflation rather than _____.

• A)try; accept a lower unemployment rate so that the actual inflation rate is less than the expected inflation rate
• B)not try; accept a high enough unemployment rate so that the actual inflation rate matches the expected inflation rate
• C)try; accept a higher unemployment rate so that the actual inflation rate is higher than the expected inflation rate
• D)not try; try to control inflation only by using aggressive disinflationary polices

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Definitions:

Stimulus Package

A set of government spending policies or tax cuts designed to boost economic activity and stimulate growth during or after a recession.

Unemployment Rate

The ratio of workers in the labor force who are unemployed and on the hunt for a job.

Inflationary Pressure

Situations or conditions that lead to an increase in prices across the economy, possibly reducing the purchasing power of money.

Market Interest Rate

The prevailing rate of interest available in the loanable funds market, influenced by supply and demand for credit, central bank policy, and investors’ expectations.