Inflation inertia is the result of the behavior of ________ and the existence of ________.
A)the central bank; automatic stabilizers
B)real and nominal interest rates; an output gap
C)autonomous aggregate demand; the Fed's policy reaction function
D)inflation expectations; long-term wage and price contracts

Question

Quizplus · Accepted Answer

Households and businesses become accustomed to gradually rising prices so actual inflation seems to follow inflation expectations. Long-term wage and price contracts are additional ways that momentum is built into inflation.

Inflation Inertia Is the Result of the Behavior of ________