In the presence of rational expectations, the central banks' willingness to battle inflation:
A) causes future inflation.
B) becomes a determinant of past inflation.
C) undermines the ability to fight inflation.
D) becomes a determinant of expected inflation.
E) weakens the central government.

Question

Quizplus · Accepted Answer

In the presence of rational expectations, the central banks' willingness to battle inflation affects the expectations of future inflation. Therefore, it becomes a determinant of expected inflation.

In the Presence of Rational Expectations, the Central Banks' Willingness