Proponents of Rational Expectations Argued That the Sacrifice Ratio

question 172

Multiple Choice

Proponents of rational expectations argued that the sacrifice ratio

• A)could be high because it was rational for people not to immediately change their expectations.
• B)could be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
• C)could be low because it was rational for people not to immediately change their expectations.
• D)could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

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Definitions:

Income Effect

The income effect describes how a change in a consumer's income affects their purchasing power and consumption choices.

Substitution Effect

The economic concept describing how consumers react to a change in price of a good by substituting it with another good, holding their level of satisfaction constant.

Delphiniums

Are a genus of flowering plants known for their tall spikes of colorful flowers, commonly used in gardens and floral arrangements.

Perfect Substitutes

Goods or services that can be used in place of one another with no loss of utility or satisfaction.