In a case where price expectations are rational but wages nonetheless adjust very slowly
A)only unanticipated monetary policy changes can affect output
B)anticipated fiscal policy changes cannot affect output
C)even anticipated monetary policy changes can affect output
D)neither fiscal nor monetary policy can reduce unemployment
E)even misguided government policy will not change real output

Question

Quizplus · Accepted Answer

In a situation where price expectations are rational, anticipated monetary policy changes can affect output because the slow adjustment of wages implies that changes in the money supply can impact the real economy before wage adjustments can fully take effect. Therefore, even if price expectations are rational, monetary policy can still impact output in the short run.

In a Case Where Price Expectations Are Rational but Wages