According to the Rational Expectations Theory, Expansionary Monetary Policy Is

question 138

Multiple Choice

According to the rational expectations theory, expansionary monetary policy is fully effective only if

• A) the policy is anticipated by workers and firms.
• B) aggregate supply shifts to the left.
• C) the economy is operating at or above its potential output level.
• D) policy makers follow through on their previously announced plans.
• E) the effects of the policy are unexpected.

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Definitions:

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, typically characterized by a reduction in average cost per unit when production is increased.

Externalities

Costs or benefits that result from an economic activity and affect third parties who did not choose to incur that cost or benefit.

Diseconomies of Scale

The phenomenon where, as a firm scales up its production, the per unit cost starts to increase, typically due to inefficiencies.