MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 17, Problem 9SQP
(a):
To determine
Impact of accurate inflation expectation.
(b):
To determine
Impact of accurate tax cut impact expectation.
(c):
To determine
Impact of accurate impact of discount rate hike expectation.
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The inflation rate is 12 percent, and the central bank is considering slowing the rate of money growth to reduce inflation to 8 percent. Economist Carlos believes that expectations of inflation change quickly in response to new policies, whereas economist Felix believes that expectations are very sluggish.
1. True or False: Economist Felix is more likely to favor using contractionary policy to reduce inflation than economist Carlos.
According to the rational-expectations approach, if everyone believes that policymakers are committed to reducing inflation, the cost of reducing inflation—the sacrifice ratio—will be lower than if the public is skeptical about the policymakers’ intentions. Why might this be true? How might credibility be achieved?
According to the rational-expectations approach, if everyone believes that policymakers are committed to reducing inflation, the cost of reducing inflation—the sacrifice ratio—will be lower than if the public is skeptical about the policymakers’ intentions.Why might this be true? How might credibility be achieved?
Chapter 17 Solutions
MACROECONOMICS FOR TODAY
Ch. 17.3 - Prob. 1YTECh. 17.6 - Prob. 1YTECh. 17 - Prob. 1SQPCh. 17 - Prob. 2SQPCh. 17 - Prob. 3SQPCh. 17 - Prob. 4SQPCh. 17 - Prob. 5SQPCh. 17 - Prob. 6SQPCh. 17 - Prob. 7SQPCh. 17 - Prob. 8SQP
Ch. 17 - Prob. 9SQPCh. 17 - Prob. 1SQCh. 17 - Prob. 2SQCh. 17 - Prob. 3SQCh. 17 - Prob. 4SQCh. 17 - Prob. 5SQCh. 17 - Prob. 6SQCh. 17 - Prob. 7SQCh. 17 - Prob. 8SQCh. 17 - Prob. 9SQCh. 17 - Prob. 10SQCh. 17 - Prob. 11SQCh. 17 - Prob. 12SQCh. 17 - Prob. 13SQCh. 17 - Prob. 14SQCh. 17 - Prob. 15SQCh. 17 - Prob. 16SQCh. 17 - Prob. 17SQCh. 17 - Prob. 18SQCh. 17 - Prob. 19SQCh. 17 - Prob. 20SQ
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- Which of the following best describes the concept of 'rational expectations' in the context of macroeconomic theory?a) The hypothesis that consumers and firms expect future inflation to match past inflation rates without considering current economic policies.b) The idea that individuals and firms make forecasts of future economic variables based solely on historical data, ignoring all current available information.c) The theory that individuals and firms use all available information, including current and historical data, to make accurate predictions about future economic variables.d) The assumption that individuals and firms consistently underestimate the impact of monetary and fiscal policies on the economy due to a lack of available information.Please don't use ai please provide valuable answer otherwise be ready for disupvotearrow_forwardAccording to the pure expectations theory, the short term rates will exceed long term rates whenever market participants expect short term rates to increase in the future. True/False?arrow_forwardAccording to the Rational Expectation Theory, A) people reformulate their expectations of inflation once a change in the inflation rate has occurred. B) people never reformulate their expectations of inflation. C) expectations of inflation are based only on past values of the inflation rate. D) people reformulate their expectations of inflation once a change in policy has occurred. E) none of the above.arrow_forward
- According to the theory of rational expectations, errors in predicting inflation will a. tend to be biased downward when inflation is rising, and tend to be biased upward when, inflation is falling. b. tend to be biased upward when inflation is rising, and tend to be biased downward when inflation is falling. c. be purely random. d. be biased upward more often than not.arrow_forwardAssume the Federal Reserve has forecasted inflation over the next year to be over its target. Because it conducts policy based on uncertain forecasts and on lags in its effects on the economy, a prudent policy for it to follow is Question 40 options: making small changes in interest rates over time to do nothing to increase the growth rate of the monetary base make large changes in interest rates and then wait to see what inflation doesarrow_forwardAn implication of the Rational Expectation Theory is that A) rational expectations of inflation are reformulated sooner than adaptive expectations of inflation. B) changes in how the inflation variable moves over time will not affect how expectations are formed. C) people can always accurately assess the actual rate of inflation. D) people always underestimate the future rate of inflation. E) people always overestimate the future rate of inflation.arrow_forward
- true or false Suppose that the central bank lost credibility in the sense that people no longer believe its inflation target (that is, inflation expectations are not `anchored’). In this case, both short-run output and long-run output do not increase in response to a permanently higher inflation target.arrow_forwardThe Phillips curve in Lowland takes the form of π = 0.04 − 0.6(u − 0.05), where π is the actualinflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form ofπ = 0.08 − 0.4(u − 0.05). The current unemployment rate in both countries is 9 percent (0.09). For both countries, analyze the impact on inflation of a 2% decrease in unemployment? In which country will policymakers face a bigger trade-off if they try to reduce unemployment in the shortrun? Whyarrow_forward(long-run Phillips Curve) Suppose the economy is at point D on the long-run Phillips curve shown in the accompanying exhibit. If that inflation rate is unacceptably high, how can policy makers get the inflation rate down? Would rational expectations help or hinder their efforts?arrow_forward
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