According to Rational Expectations Theory

question 39

Multiple Choice

According to rational expectations theory:

• A)a large reduction in unemployment can be achieved with a relatively small increase in inflation.
• B)people are not easily fooled by changes in government fiscal policy.
• C)inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time.
• D)the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate.
• E)none of the above is true.

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Definitions:

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A harmonic that is three times the frequency of the fundamental frequency, often causing distortion in power systems.

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A war fought from 1775 to 1783, in which the Thirteen American Colonies won independence from British rule, becoming the United States of America.

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A prolonged conflict (1955-1975) between communist forces in North Vietnam and non-communist forces in South Vietnam, heavily involving the United States and leading to significant casualties and societal disruption.