Author Question: If the economy is at point 1 in Figure 13.1 and the central bank issues a credible statement that it ... (Read 13 times)

HudsonKB16 · **on:** Jun 30, 2018

If the economy is at point 1 in Figure 13.1 and the central bank issues a credible statement that it can and will cause inflation to rise, what happens next?

A) the economy moves to point 2
B) the economy remains at point 1
C) the economy moves to the left along the AS curve
D) the AS curve shifts down, causing both output and inflation to decline
E) the AS curve shifts up, causing both output and inflation to rise

Question 2

The permanent income hypothesis highlights the phenomenon of ________.

A) the intertemporal budget constraint
B) a binding borrowing constraint
C) autonomous consumption
D) consumption smoothing