If People's Expectations of Inflation Are Formed Rationally Rather Than

question 52

Multiple Choice

If people's expectations of inflation are formed rationally rather than based on adaptive expectations and if policymakers make a credible policy move to reduce inflation, then the costs of reducing inflation will be ______ traditional estimates of the sacrifice ratio.

• A) much higher than
• B) much lower than
• C) exactly equal to
• D) approximately two percent greater than

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Definitions:

Collateral

Assets pledged by a borrower to secure a loan or credit, which can be seized by the lender if the loan is not repaid.

Auto Sales & Finance

The business operations related to selling automobiles to consumers, usually involving financing options to assist with the purchase.

Co-Surety

A joint surety; one who assumes liability jointly with another surety for the payment of an obligation.

Debtor

An individual or organization that owes money or debt to another entity.