Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations
-(Exhibit: Monetary Policy and Rational Expectations) If rational expectations exist and the economy is initially operating at point d. If the Fed undertakes contractionary monetary policy the economy will
A) spend some time at c with a recessionary gap.
B) spend no time at c and move directly to b.
C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left.
D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Question

Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations 
-(Exhibit: Monetary Policy and Rational Expectations) If rational expectations exist and the economy is initially operating at point d. If the Fed undertakes contractionary monetary policy the economy will
A) spend some time at c with a recessionary gap. 
B) spend no time at c and move directly to b. 
C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Quizplus · Accepted Answer

The Answer of Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations 
-(Exhibit: Monetary Policy and Rational Expectations) If rational expectations exist and the economy is initially operating at point d. If the Fed undertakes contractionary monetary policy the economy will
A) spend some time at c with a recessionary gap. 
B) spend no time at c and move directly to b. 
C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Use the Following to Answer Questions