Figure 11-6 -Refer to Figure 11-6. If Rational Expectations Exist and the Exist

question 102

Multiple Choice

Figure 11-6
-Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at
Point d. If the Fed undertakes contractionary monetary policy the economy will

• A) spend some time at c with a recessionary gap.
• B) spend no time at c and move directly to b.
• C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left.
• D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.