(Figure: Understanding Expectation Theories) Assume the economy is at point c. According to the theory of rational expectations, if the Federal Reserve announces and then starts a plan to practice contractionary policy, the economy will move from point c to point:

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The Answer of (Figure: Understanding Expectation Theories) Assume the economy is at point c. According to the theory of rational expectations, if the Federal Reserve announces and then starts a plan to practice contractionary policy, the economy will move from point c to point:

(Figure: Understanding Expectation Theories) Assume the Economy Is at Point