The integration of expectations into macroeconomic analysis indicates that
A) fiscal policy is more potent than monetary policy.
B) monetary policy is more potent than fiscal policy.
C) once people come to expect a given rate of inflation, the inflation will neither stimulate real output nor reduce unemployment.
D) higher rates of inflation will lead to lower rates of unemployment in the long run but not in the short run.

Question

Quizplus · Accepted Answer

The integration of expectations into macroeconomic analysis indicates that once people come to expect a given rate of inflation, the inflation will neither stimulate real output nor reduce unemployment. This is known as the "long-run Phillips curve," which suggests that there is a trade-off between inflation and unemployment only in the short run. In the long run, higher rates of inflation will not lead to sustained lower rates of unemployment. Therefore, options A, B, and D are incorrect.

The Integration of Expectations into Macroeconomic Analysis Indicates That