In the new classical view, if the Chairman of the Fed announces a 10% increase in the money supply and then takes actions that cause the money supply to grow by more than 10%, the result will be
A)a 10% increase in the price level and no change in output.
B)a 10% increase in the price level and an increase in output.
C)a greater than 10% increase in the price level and an increase in output.
D)a greater than 10% increase in the price level and no change in output.

Question

Quizplus · Accepted Answer

The new classical view posits that rational expectations will lead individuals to anticipate the effects of monetary policy. If the actual increase in the money supply exceeds expectations, it will result in a greater than anticipated increase in the price level and temporarily boost output, as people adjust their expectations.

In the New Classical View, If the Chairman of the Fed