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Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires...

Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires both low inflation and low unemployment, and that the central bank uses discretion in conducting monetary policy. Initially, households and firms expect high inflation. Following an announcement by the central bank of a low-inflation policy, households and firms will ______ the central bank's announcement and ______ their expectations of inflation.
believe; not change
not believe; not change
not believe; lower
believe; lower
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Answer #1

The answer is option b- not believe, not change

Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires both low inflation and low unemployment, and that the central bank uses discretion in conducting monetary policy. Initially, households and firms expect high inflation. Following an announcement by the central bank of a low-inflation policy, households and firms will not believe the central bank's announcement and not change their expectations of inflation.

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