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Exhibit: Monetary Policy and Rational Expectations
-(Exhibit: Monetary Policy and Rational Expectations) Suppose the economy is operating at point a. Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at
A) d. They rationally adjust their behavior, bypassing the short-run equilibrium at c.
B) d. They rationally adjust their behavior, bypassing the short-run equilibrium at b
C) b. They rationally adjust their behavior, bypassing the long-run equilibrium at d
D) a . They rationally adjust their behavior, bypassing the short-run equilibrium at b

Question

Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations 
-(Exhibit: Monetary Policy and Rational Expectations) Suppose the economy is operating at point a. Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at
A) d. They rationally adjust their behavior, bypassing the short-run equilibrium at c. 
B) d. They rationally adjust their behavior, bypassing the short-run equilibrium at b 
C) b. They rationally adjust their behavior, bypassing the long-run equilibrium at d 
D) a . They rationally adjust their behavior, bypassing the short-run equilibrium at b

Quizplus · Accepted Answer

People observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at d. They rationally adjust their behavior, bypassing the short-run equilibrium at b.

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