In what way do inflation expectations impact actual inflation Inflation expectat

Question

In what way do inflation expectations impact actual inflation Inflation expectations don't actually impact actual inflation, only expected inflation. The Federal Reserve will tell suppliers what prices they should be charging, and will tell employers what the wage rates should be. The Federal Reserve will announce its inflation targets, and therefore wage and price contracts will be adjusted to meet the expected level of inflation. It is actual inflation that affects expected inflation, not vice versa.

Explanation / Answer

Answer: The last option, it is actual inflation that affects expected inflation, but not vice versa.

Expected inflation is a state of mind of workers and employers that they expect continuing the present inflation in future. Due to such expectation they want to increase their income now.

It affects from the actual inflation, but it doesn’t necessarily be happened in future. Inflation may continue or may not continue. Therefore, this is not vice versa.

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