Inflation inertia is the result of the behavior of ________ and the existence of ________.
A. real and nominal interest rates; an output gap
B. inflation expectations; long-term wage and price contracts
C. autonomous aggregate demand; the Fed's policy reaction function
D. the central bank; automatic stabilizers
Answer: B
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The Fed's interest rate response to the rising output ratio experienced from 1997 to 1999 is explained by
A) beneficial supply shocks which pushed down the inflation rate. B) the Fed's efforts to help end the Asian financial crisis C) the Fed's uncertainty about the concepts of the natural level of output and natural rate of unemployment. D) All of the above.
A scientist who is studying earthquakes includes the impact of wind when performing some tests of damages to structures. This is an example of
A) failing to understand how to do scientific methodology. B) irrational behavior in noneconomic situations. C) accounting for every possible phenomena that may effect the problem under examination. D) failing to hold all other things constant.