Assume That Expected Inflation Is Based on the Following: πEt

question 41

Multiple Choice

Assume that expected inflation is based on the following: πet = θπt-1.An increase in θ will cause

• A)an increase in the natural rate of unemployment.
• B)a reduction in the natural rate of unemployment.
• C)no change in the natural rate of unemployment.
• D)inflation in period t to be more responsive to changes in unemployment in period t.

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Definitions:

Marginal Cost

The financial outlay for making an additional unit of a good or service.

Profit-maximizing

A strategy or process employed by firms aiming to achieve the highest possible profit by adjusting factors such as output, price, and input use.

Demand

Refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a given period of time.

Third-Degree Price Discrimination

A pricing strategy where different prices are charged to different groups of consumers for the same product or service, based on varying demand elasticities.