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Exhibit: Monetary Policy and Rational Expectations
-(Exhibit: Monetary Policy and Rational Expectations) If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from
A) a to b.
B) a to c.
C) b to a.
D) c to a.

Question

Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations 
-(Exhibit: Monetary Policy and Rational Expectations) If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from
A) a to b. 
B) a to c. 
C) b to a. 
D) c to a.

Quizplus · Accepted Answer

In the absence of rational expectations, an expansionary monetary policy would typically lead to a movement from point a to point b, as it would increase aggregate demand, leading to higher output and possibly higher prices in the short run.

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