Figure 17-6
-Refer to Figure 17-6.If firms and workers have rational expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

Question

Figure 17-6 
-Refer to Figure 17-6.If firms and workers have rational expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

Quizplus · Accepted Answer

If firms and workers have rational expectations, they will anticipate the effects of the expansionary monetary policy. This anticipation means that the economy moves directly to the long-run equilibrium without going through the short-run phases of higher output at lower prices. Therefore, the equilibrium moves from point A to point C, where the economy is at a new equilibrium with a higher price level but the same level of output as before the policy was implemented.

Figure 17-6 -Refer to Figure 17-6.If Firms and Workers Have Rational Expectations,an