According to the misperceptions theory,if the Fed 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 the monetary targets it announced.

Question

Quizplus · Accepted Answer

The misperceptions theory suggests that the effectiveness of monetary policy on the real economy depends on the public's beliefs about it. If the Fed wants to influence the real economy through monetary policy, it would have to surprise the public with unexpected changes in the money supply or interest rates. This would cause people to change their behavior and spending patterns, leading to a change in the real economy. Option A is incorrect as increasing the money supply only when the economy is in a recession may not be effective if people expect it. Option B is incorrect as decreasing money supply during an inflationary boom may lead to contraction in the real economy. Option D is incorrect as announcing monetary targets and abiding by them may not create any surprises in the economy.

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