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Active monetary policy and passive monetary policy

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1. Over the past five years, you have recorded the inflation rate to be 3%, 4%, 3%, 4%, and 3%, respectively. According to rational expectations theory, what would market participants expect inflation to be next year, and why?

2. Explain the difference between active monetary policy and passive monetary policy, commenting on the Federal Reserve's use of monetary policy since the early 1980s.

Reference no: EM131090637

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