Assume That Expected Inflation Is Based on the Following: πᵉT

Multiple Choice

Assume that expected inflation is based on the following: πᵉt = θπt₋₁. If θ = 1,we know that

A) a reduction in the unemployment rate will have no effect on inflation.
B) low rates of unemployment will cause steadily increasing rates of inflation.
C) the actual unemployment rate will not deviate from the natural rate of unemployment.
D) the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.