According to the Rational Expectations Theory, Expansionary Monetary Policy Will

question 109

Multiple Choice

According to the rational expectations theory, expansionary monetary policy will

• A) reduce inflation.
• B) lead to inflation and the higher rate of inflation will be quickly anticipated.
• C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion.
• D) accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment.

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an obligation, typically financial, owed by one party to another.