According to the Rational Expectations Theory, If the Federal Reserve

question 132

Multiple Choice

According to the rational expectations theory, if the Federal Reserve announces that it is going to decrease the money supply, output

• A) and the price level both will fall in the short run.
• B) will remain unchanged, but the price level will fall immediately.
• C) will fall in the short run but return to full employment output at a lower price level in the long run.
• D) will fall in the short run, but the price level will remain unchanged.

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