The Rational Expectations Approach Asserts That, Starting from a Long-Run

question 28

Multiple Choice

The rational expectations approach asserts that, starting from a long-run equilibrium situation, if a restrictive monetary policy is announced and implemented, the economy will

• A)move rapidly to a new equilibrium without a notable recession
• B)suffer a long and deep recession before reaching a new equilibrium
• C)remain at the same level of inflation since government policies are always ineffective
• D)move slowly to a new equilibrium since wages tend to adjust slowly
• E)fail to adjust since the policy was anticipated

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