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. To reduce inflation from 8% to 2% in the short run, the central bank would have to accept an unemployment rate of%. 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.
A. True
B. False

i) Dis-inflation

ii) 9%

iii) True

Explanation:

A reduction in the rate of inflation is known as Dis-inflation and for the central bank to reduce inflation from 8% to 2% the central bank would have to accept a 9% unemployment rate

This can be proved  below using this relationship

reduction of inflation = new inflation ( Δ u )  

where Δ u = change in unemployment

hence increase in unemployment  will be

Reduction of inflation / new inflation

= 6% points / 2%  = 3%

From the intersection of the short-run Philips curve and the long run Philips curve when the inflation rate is at 8% the unemployment rat is at 6% and when the inflation rate falls to 2% the unemployment rate rises to 9% ( 6% + 3% ) the calculation above supports the effect of the reduction in inflation rate on unemployment rate

Due to Rational expectations from the people they will have to endure an unemployment as high as predicted this is in order to ensure a strong purchasing power for the currency ( True )

a

b

b

a

c

b

d

d

none of these are correct, as they are all sources of american law

a