The Rational Expectations Equilibrium Approach Claims That the Price Level

question 41

Multiple Choice

The rational expectations equilibrium approach claims that the price level can be reduced through restrictive monetary policy without causing a lengthy and deep recession

• A)if the monetary policy change is announced in advance
• B)since workers will increase their work effort as soon as they discover that actual prices are below expected prices
• C)since even unanticipated money supply changes have only a short-lived influence on economic activity and are soon fully reflected in price changes
• D)since people will revise their forecasts of wages and prices as soon as they find out how much money supply has changed
• E)all of the above

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