Assume that the rational-expectations theory is a realistic assumption of how people and firms set their expectations. Indicate the effect of each of the following on the price level and aggregate output.
(a) The Fed announces that it will increase the supply of money.
(b) The government unexpectedly increases government spending.

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The Answer of Assume that the rational-expectations theory is a realistic assumption of how people and firms set their expectations. Indicate the effect of each of the following on the price level and aggregate output.
(a) The Fed announces that it will increase the supply of money.
(b) The government unexpectedly increases government spending.

Assume That the Rational-Expectations Theory Is a Realistic Assumption of How