Under the assumption of rational expectations, an anticipated increase in the money supply has no effect on
A) nominal GDP.
B) real GDP.
C) the price level.
D) velocity.

Question

Quizplus · Accepted Answer

Under the assumption of rational expectations, an anticipated increase in the money supply is expected to have no effect on real GDP because individuals and businesses adjust their behavior in anticipation of the changes in monetary policy, leaving real variables like output unaffected in the long run.

Under the Assumption of Rational Expectations, an Anticipated Increase in the Money