For this question,assume that the expected rate of inflation is a function of past year's inflation.Also assume that the unemployment rate has greater than the natural rate of unemployment for a number of years.Given this information,we know that

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Quizplus · Accepted Answer

If the unemployment rate has been above the natural rate for a number of years, it indicates a weak labor market which should lead to a decrease in inflation over time. This is because the supply of labor exceeds the demand, resulting in lower wages and lower production costs, which in turn should result in lower prices for goods and services. Additionally, assuming that expected inflation is a function of past year's inflation, the decrease in actual inflation should also lead to a decrease in expected inflation, further reinforcing the trend towards lower inflation.

For This Question,assume That the Expected Rate of Inflation Is