Refer to the following figure when answering the following questions.
Figure 13.5: AS/AD Model
-Consider Figure 13.5. If the Fed sets a lower inflation target, under rational expectations, the economy moves from point ________ to point ________.
A) c; a instantly
B) a; c slowly
C) c; d instantly
D) c; b slowly
E) b; a instantly

Question

Refer to the following figure when answering the following questions.
Figure 13.5: AS/AD Model 
-Consider Figure 13.5. If the Fed sets a lower inflation target, under rational expectations, the economy moves from point ________ to point ________.
A) c; a instantly 
B) a; c slowly 
C) c; d instantly 
D) c; b slowly 
E) b; a instantly

Quizplus · Accepted Answer

Under rational expectations, if the Fed sets a lower inflation target, the economy moves from point c to point a instantly because economic agents adjust their expectations immediately, leading to an immediate shift in the economy.

Refer to the Following Figure When Answering the Following Questions