The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have

Question

Quizplus · Accepted Answer

Firms and workers during that period had both adaptive expectations and rational expectations, but didn't trust Fed announcements due to their history of inconsistent policy actions. Adaptive expectations meant that they expected future inflation based on their recent experience, while rational expectations implied that they understood how monetary policy affects the economy but were uncertain about its implementation. Therefore, the best choice is D: Both A and B are correct answers. Option C is not a relevant explanation because no one prefers high unemployment over high inflation.

The Experience of Paul Volcker's Fight Against Inflation During the Late