Asked by Bui Huyen Trang (K13_HN) on May 11, 2024
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Proponents of rational expectations argue that failing to account for peoples' revised inflation expectations led to estimates of the sacrifice ratio that were too high.
Rational Expectations
The theory that people optimally use all the information they have, including information about government policies, when forecasting the future.
Sacrifice Ratio
A measure of the economic cost associated with reducing inflation, often calculated as the percentage loss in output per percentage point decrease in inflation.
Inflation Expectations
The anticipation by consumers and businesses of the rate at which prices will rise in the future.
- Comprehend the importance of the sacrifice ratio within efforts to reduce inflation.
- Understand the influence of inflation expectations on the results of economic policies.
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Learning Objectives
- Comprehend the importance of the sacrifice ratio within efforts to reduce inflation.
- Understand the influence of inflation expectations on the results of economic policies.
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