According to the Rational Expectations School,if the Fed Announces a Policy

question 101

Multiple Choice

According to the rational expectations school,if the Fed announces a policy of rapid growth in the money supply,but then puts the brakes on money expansion without any announcement,the short-run result is likely to be

• A)an unexpected surge in aggregate demand
• B)an unexpected drop in aggregate demand
• C)an anticipated surge in aggregate demand
• D)an anticipated drop in aggregate demand
• E)no change in aggregate demand

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Definitions:

Principal-Agent Problems

A situation in economics where one party (the agent) is expected to act in the best interest of another party (the principal) but may have the incentive to act in their own interest instead.

Agent

Individual employed by a principal to achieve the principal’s objective.

Principal

Individual who employs one or more agents to achieve an objective.

Plant Managers

Individuals responsible for overseeing the daily operations of manufacturing plants and facilities, ensuring efficient production processes.