In general, the sacrifice ratio is smaller, the... O a. Shorter it takes to revise inflationary expectations upwards. O b. Longer it takes to revise inflationary expectations downwards. O c. Longer it takes to revise inflationary expectations upwards. O d. Shorter it takes to revise inflationary expectations downwards. e. Small the initial inflation rate.

In general, the sacrifice ratio is smaller, the... O a. Shorter it takes to revise inflationary expectations upwards. O b. Longer it takes to revise inflationary expectations downwards. O c. Longer it takes to revise inflationary expectations upwards. O d. Shorter it takes to revise inflationary expectations downwards. e. Small the initial inflation rate.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 6DQ

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1. Are the implications of the rational and adaptive expectations hypotheses different in the short-run? A.No, because under both theories people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. B.Yes, because under adaptive expectations there is a significant time lag before people come to expect the inflation and incorporate it into their decision making, whereas the rational expectations implies that people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. C.Yes, because under rational expectations theory there is a significant time lag before people come to expect the inflation and incorporate it into their decision making, whereas the adaptive expectations theory implies that people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. D. No, because under both theories, there is a significant time…
In a decelerating inflation environment (e.g. with inflation rate at 20%, 18%, 14%, .. year after year), using "adaptive inflation expectations" formation, the forecasted future inflation rate is likely to be O systematically biased upward. O systematically biased downward. O always correct. O about correct on average.
People are said to have rational expectations if they Select one: a. merely guess at the inflation rate b. assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years O c. use all available information in forming their expectations about inflation O d. assume that this year's inflation rate will be the same as last year's inflation rate
According to adaptive expectations, what happensto the inflation rate and the unemploymentrate in the following situations?a. Initially, the economy is operating at thenatural rate of 6 percent unemployment.The anticipated rate of inflation is6 percent, and the actual rate is also6 percent.b. In the next period, there is an unexpected risein the inflation rate to 10 percent.c. In the next period, there is an unexpected risein the inflation rate to 12 percent.
Why could inflation be persistent in times of output gaps? O a. Because of inflation expectations O b. Because of wage contracts that were signed some time ago O c. Because of menu costs in adjusting prices frequently O d. All of the answers are correct
Place “MON,” “RET,” or “MAIN” beside the statements that most closely reflflect monetarist, rational expectations, or mainstream views, respectively:a. Anticipated changes in aggregate demand affect only the price level; they have no effect on real output.b. Downward wage inflexibility means that declines in aggregate demand can cause long-lasting recession.c. Changes in the money supply M increase PQ; at first only Q rises because nominal wages are fixed, but once workers adapt their expectations to new realities, P rises and Q returns to its former level.d. Fiscal and monetary policies smooth out the business cycle.e. The Fed should increase the money supply at a fixed annual rate.
All of the following arguments are made against inflation targeting EXCEPT Select one: O a. uncertainty about future levels of output and employment can impede economic decision making in the presence of an inflation target. O b. it would provide an anchor for inflationary expectations. O .rigid numerical targets for inflation diminish flexibility, o d. this policy tool could be economically destabilizing.
Which of the following situations would lead to actual inflation of 3%? A. future inflation is 1%; output-gap inflation is 0%; supply-shock inflation is 2% B. future inflation is 3%; output-gap inflation is 3%; supply-shock inflation is 3% C. future inflation is 1.5%; output-gap inflation is 1.5%; supply-shock inflation is 3% D. future inflation is 0%; output-gap inflation is 3%; supply-shock inflation is - 3% E. future inflation is 3%; output-gap inflation is 0%; supply-shock inflation is - 3%
The proponents of rational expectations argue that it is possible to reduce inflation without causing any recession if: (i) The policymakers' plan to reduce inflation is announced before people form their expectations. (ii) The policymakers' plan to reduce inflation adjusts when people change their expectations. (iii) The people believe the policy announcement on inflation reduction. Either (i) or (ii) Both (i) and (iii) O c. c. Either (i) or (iii) O d. Both (i) and (ii) a. O b.
The more credible the policymakers who pursue an anti-inflation policy, the more successful that policy will be." Is this statement true, false, or uncertain? Explain your answer. OA False. The credibility of policymakers is not important to the wage- and price-seting process, and thus has no effect on the success of inflation policy. OB. True. If expectations affect the wage- and price setting process, a credible and-infation policy will reduce inflation faster and at lower costs. C. Uncertain. The success of inflation policy depends on timing and size, not on credibility and expectations. OD. Uncertain. Expectations and credibility are only important in the classical model, and so have no effect in other models of the economy.
Stagflation, that is, high unemployment combined with high inflation Multiple Choice O O о O cannot persist, since the economy eventually will return to full employment can only occur if expansionary monetary policy is combined with restrictive fiscal policy is inconsistent with the inflation-expectations-augmented Phillips curve cannot occur as long as the expected inflation rate is above the actual inflation rate can only occur during the period of economy expansion
One reason that inflation can persist even after its original causes have been removed is that... O a. Workers expect wage increases to match increases in labour productivity. O b. Workers are willing to accept wage increases lower than the increase in productivity. O c. Governments embark on a deficit-cutting programme. O d. Inflationary expectations cause the AS curve to continue shifting upwards. The Bank of Canada ensures that money-supply O e. growth matches growth in real GDP.