(Figure: Understanding Expectation Theories) Assume the Economy Is at Point

question 93

Multiple Choice

(Figure: Understanding Expectation Theories) Assume the economy is at point c. According to the theory of adaptive expectations, if the Federal Reserve announces and then implements a contractionary policy, the economy will move from point c to point:

• A) a to point d.
• B) b to point d.
• C) d directly.
• D) a to point b.

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