According to the Phillips curve with extrapolative expectations, a decrease in period t output generates:
A)a positive effect on period t inflation.
B)an increase in period t-1 inflation.
C)a negative effect on period t+1 inflation.
D)none of the above

Question

Quizplus · Accepted Answer

The Phillips curve with extrapolative expectations suggests that a decrease in output in period t would lead to lower inflation expectations for the future (period t+1), hence a negative effect on period t+1 inflation.

According to the Phillips Curve with Extrapolative Expectations, a Decrease