Chapter 34, Problem 4MCQ

To determine

The correct option for bringing down inflation that becomes embedded in expectations.

Answer to Problem 4MCQ

From the available options, the correct option is disinflation.

Explanation of Solution

When there is a temporary reduction in price inflation then this is a disinflation in an economy that would become embedded in expectations. Whereas, deflation is a broad fall in prices for goods and services which is often accompanied by a reduction in the amount of credit and money available to the economy.

An anti-inflation program, plan, or policy supports to prevent or reduce inflation in the economy. When prices in an economy generally decline, negative inflation occurs.

And, unexpected inflation is inflation that is either higher or lower than what was anticipated.

Therefore, the correct option is e (disinflation) and all other options are incorrect.

Economics Concept Introduction

Introduction: Inflation means there is an increase in the price of goods and services in the economy which affects the consumption level of the people in the country. When there is a temporary reduction in price inflation then this is disinflation in economy. And, the Philips curve represents the inflation and unemployment relationship at different rates in economy.