According to the rational expectations school,a correctly anticipated expansionary monetary policy will:
A)increase prices and real output.
B)increase real output only in the short run.
C)have no effect on prices or real output.
D)decrease prices and real output.
E)lead only to a higher price level.

Question

Quizplus · Accepted Answer

According to the rational expectations school, if an expansionary monetary policy is correctly anticipated, economic agents will adjust their expectations accordingly. This means they will expect higher inflation in the future, leading to immediate adjustments in prices. However, since the policy is anticipated, it does not surprise agents or change their behavior in a way that would affect real output. Therefore, the primary effect is an increase in the price level without a change in real output.

According to the Rational Expectations School,a Correctly Anticipated Expansionary Monetary