What is inflation bias? What measures have governments taken to avoid it?
What will be an ideal response?
Inflation bias is caused when a government is expected to use policy tools to create an economic expansion (such as before an election). Because it is expected, wages and therefore prices are increased. If the government did not pursue the expansionary policy then, there would be a recession! Inflation is increased without the advantage of an increase in output.
Making the central bank independent of the political government is one answer to avoid inflation bias.
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In a game, a Nash equilibrium is reached only if the players:
A) understand the game and the payoffs associated with each strategy. B) follow a mixed strategy. C) use backward induction method to develop their strategies. D) have no best response for the choices made by other players.
A firm produces leather handbags and leather shoes. If there are economies of scope, the product transformation curve between handbags and shoes will be
A) a straight line. B) bowed outward (concave). C) bowed inward (convex). D) a rectangle.