Suppose a Central Bank Announced That It Was Going to Make

question 55

Multiple Choice

Suppose a central bank announced that it was going to make a serious effort to fight inflation.A few years later the inflation rate is lower,but there had been a serious recession.We could conclude with certainty that

• A)the rational expectations hypothesis is false.
• B)the rational expectations hypothesis is true.
• C)the policymakers lacked credibility.
• D)None of the above is certain.

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Definitions:

Consumer Price Index (CPI)

A metric that calculates the mean variation over time in the costs incurred by urban buyers for a selection of consumer products and services.

Inflation Rate

The percentage increase in the price level of goods and services in an economy over a period of time.

Purchasing Patterns

The habits or trends that emerge among consumers regarding how they buy goods or services over time.

Nominal Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country in a given period, measured in current prices without adjusting for inflation.