Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 8, Problem 4QAP
(a)
To determine
The process of forming the expected inflation when
(b)
To determine
The process of forming the expected inflation when
(c)
To determine
To analyze the way of formation of own expectation.
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An 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.
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 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.
Chapter 8 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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