Which of the following assumptions best characterized the assumption about how individuals formed expectations of inflation by  the  early  1970s  in  the  USA? Expected inflation  for  the  current  year  was  smaller than  the  previous  year’s  inflation  rate Expected inflation  for  the  current  year  was  less  than the  previous  year’s  inflation  rate Expected inflation  for  the  current  year  was  approxi- mately  equal  to  the  previous  year’s  inflation  rate Expected inflation  for  the  current  year  equal  to  the average  inflation  rate  over  the  past  ten  years none of  the  above

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Q: 4. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on car…

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