Rational expectations believe that a. the government must change government spending and taxes during inflation and deflation gaps b. people will form the most accurate possible expectations about the future that they can, using all the available information available to them c. the federal reserve must buy and sell government securities during inflation and deflation gaps d. the economy will never self-correct

In this Decision Point you learned a little about inflation and inflation expectations. Apply what you learned from this decision point to the following questions. Erica makes $25 per hour. Erica receives a 1.9%1.9% raise and inflation is 2.5%2.5% what happens to her real wage? Her real wage: rises by 1.9%1.9% rises by 2.5%2.5% falls by 0.6%0.6%. does not change.

What happens when a central bank pursues inflation targeting?     A. The policy actions that central banks use to achieve the inflation target are kept secret.   B. With inflation targeting, the United States would be more successful at achieving low and stable inflation.   C. Many central banks achieve their inflation target at the expense of extremely high unemployment.   D. The bank announces an explicit inflation target and the public is confident the bank's policy will achieve that target. thank you!!

A government with debt has an incentive to create inflation to eliminate some debt. Why might it not always do this? I. The fisher effect II. The government cannot create inflation III. This may upset bond purchasers who are also voters IV. Borrowers and lenders come to expect increases in inflation, which increases the nominal interest rate III only I, III, and IV II and III only All of these above