An Economist Advising a Central Bank Intending to Reduce the Inflation

question 33

Multiple Choice

An economist advising a central bank intending to reduce the inflation rate would likely point out that

• A)the costs of reducing inflation persist and the costs of reducing it do not depend on the public's inflation expectations.
• B)the costs of reducing inflation persist,but they are smaller if the public reduces its inflation expectations.
• C)the costs of reducing inflation are temporary and the costs of reducing it do not depend on the public's inflation expectations.
• D)the costs of reducing inflation are temporary and the costs are smaller if the public reduces its inflation expectations.

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Definitions:

Perfect Competition

A market structure characterized by a complete absence of rivalry among the producers, with many buyers and sellers, each of whom has a negligible impact on the market.

Identical Service

A service that is exactly the same in every feature and aspect when compared to another service.

Efficient Output

The level of production at which a company or economy can produce goods at the lowest possible cost per unit, maximizing the allocation of resources.

Perfect Competitor

A hypothetical firm in a perfectly competitive market that cannot influence the market price of its product and takes the market price as given.