Under adaptive expectations theory, people persistently:
a. underestimate inflation when it is slowing down.
b. overestimate inflation when it is accelerating.
c. underestimate inflation when it is accelerating.
d. adapt to the prevailing inflation rate.
c
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Suppose a local photographer increases his prices by 8 percent and quantity demanded decreases by the same percentage. This set of facts indicates that the demand for his services is
A) inelastic. B) elastic. C) unit elastic. D) perfectly elastic. E) perfectly inelastic.
The horizontal-equity principle of taxation is not easy to use in practice because
A) different people receive different levels of government benefits even if their incomes are the same. B) people can use tax loopholes to reduce their incomes below the incomes of other taxpayers. C) it is difficult to determine whether people are in the same economic situation. D) some people engage in rent seeking to reduce their taxes below the level other people pay.