A permanent reduction in inflation would
A)permanently reduce the frequency of price changes and permanently lower unemployment.
B)permanently reduce the frequency of price changes and temporarily raise unemployment.
C)temporarily reduce the frequency of price changes and temporarily lower unemployment.
D)temporarily reduce the frequency of price changes and temporarily raise unemployment.

Question

Quizplus · Accepted Answer

A permanent reduction in inflation would lead to a permanent reduction in the frequency of price changes as prices stabilize. However, it may temporarily raise unemployment due to the short-term adjustment costs and rigidities in the economy as businesses and workers adapt to the new lower inflation environment.

A Permanent Reduction in Inflation Would