Advocates of the theory of rational expectations believe that a. the sacrifice ratio can be much smaller if policymakers make a credible commitment to low inflation. b. if disinflation catches people by surprise, it will have minimal impact on unemployment. c. wage and price setters never expect the central bank to follow through on its announcements. d. expected inflation depends on the rates of inflation that people have recently observed.

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter 22, Problem 4CQQ
Textbook Problem

Advocates of the theory of rational expectations believe that

a. the sacrifice ratio can be much smaller if policymakers make a credible commitment to low inflation.

b. if disinflation catches people by surprise, it will have minimal impact on unemployment.

c. wage and price setters never expect the central bank to follow through on its announcements.

d. expected inflation depends on the rates of inflation that people have recently observed.

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