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Question 38 Rational Expectations Theory suggests that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment Not yet and quickly lower their inflation expectation, the Sacrifice Ratio could be as low as which of the following? answered Marked out of Select one: 1.5 O a. 3 Flag question O b. 1 O C.5 O do Question 39 The Time Inconsistency of government policy implies which of the following? Not yet answered Select one: Marked out of 1.5 O a. The Bank of Canada coordinates its actions with elected officials. Flag O b. What policymakers say they will do is generally what they will do, but people don't believe them because of current policy. question O C. People always expect more inflation than policymakers claim they are trying to achieve. O d. When people expect that inflation will be low, it is harder for the Bank of Canada to increase output by increasing the money supply. Question 40 Consider a scenario in which the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price Not yet level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, what must the central bank do, and what will happen to output? answered Marked out of Select one: 1.5 O a. The central bank must decrease the money supply, which will move output farther from its long-run level. Flag question O b. The central bank must increase the money supply, which will move output back toward its long-run level. O C. The central bank must increase the money supply, which will move output farther from its long-run level. O d. The central bank must decrease the money supply, which will move output back toward its long-run level