Question

Suppose that the central bank in this economy is concerned that inflation is too high and wants to lower the inflation rate by 6 percentage points per year. A reduction in the rate of inflation is known as d sinflation . To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of ____________ .

True or False:

If people have rational expectations, the economy may not have to endure an unemployment rate as high as predicted by the short-run Phillips curve.

Answer 1