Assume That Expected Inflation Is Based on the Following: πEt

question 57

Multiple Choice

Assume that expected inflation is based on the following: πet = θπt-1.If θ = 0,we know that

• A)a reduction in the unemployment rate will have no effect on inflation.
• B)low rates of unemployment will cause steadily increasing rates of inflation.
• C)high rates of unemployment will cause steadily declining rates of inflation.
• D)the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.