Figure 27-3

-In the new classical model in Figure 27-3, an anticipated expansionary monetary policy ________.
A)shifts the economy from point 1 to point 2 to point 3
B)shifts the economy from point 1 to point 4 to point 3
C)shifts the economy from point 1 to point 3
D)shifts the economy from point 3 to point 1

Question

Figure 27-3
 
-In the new classical model in Figure 27-3, an anticipated expansionary monetary policy ________.
A)shifts the economy from point 1 to point 2 to point 3 
B)shifts the economy from point 1 to point 4 to point 3 
C)shifts the economy from point 1 to point 3 
D)shifts the economy from point 3 to point 1

Quizplus · Accepted Answer

In the new classical model, an anticipated expansionary monetary policy shifts the economy from point 1 to point 3. This is because the economy is initially at its natural level of output, represented by point 1. When the expansionary monetary policy is anticipated, it leads to an increase in expected inflation, which shifts the short-run aggregate supply curve upward. This leads to an increase in both output and the price level, represented by point 3 on the diagram.

Figure 27-3 -In the New Classical Model in Figure 27-3, an Anticipated