If the public holds rational expectations regarding changes in monetary policy, the short-run Phillips curve may be vertical.

Question

Quizplus · Accepted Answer

If the public has rational expectations about changes in monetary policy, they will anticipate any shift in policy and adjust their behavior accordingly. This means that any perceived short-term benefits from an expansionary monetary policy will be offset by inflationary expectations, resulting in a vertical short-run Phillips curve.

If the Public Holds Rational Expectations Regarding Changes in Monetary