According to the misperceptions theory,if the Bank wanted to use monetary policy to influence the real economy,it would have to
A)increase the money supply whenever the economy was in a recession.
B)decrease the money supply whenever the economy was in an inflationary boom.
C)surprise the public with unexpected changes in monetary policy.
D)abide by its announced monetary targets.

Question

Quizplus · Accepted Answer

According to the misperceptions theory, the effectiveness of monetary policy depends on the surprise element of the policy changes. The theory suggests that individuals may have incorrect perceptions or expectations about the behavior of prices, wages, and other economic variables. Therefore, unexpected changes in monetary policy can cause a misperception and affect the behavior of people and firms, leading to changes in economic activity. As a result, if the goal is to influence the real economy, the Bank should surprise the public with unexpected changes in monetary policy.

According to the Misperceptions Theory,if the Bank Wanted to Use