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Question
People know that the Fed has the incentive to announce that the inflation rate will be 3 percent next year, so people will build 3 percent inflation into their wage negotiations. But then the Fed has the incentive to increase inflation above 3 percent to make the economy grow faster. This type of phenomenon is known asa. inflation targeting.
b. time inconsistency.
c. McCallum's rule.
d. an expectations trap.
Answer
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