According to the Rational Expectations School,a Correctly Anticipated Expansionary Monetary

question 32

Multiple Choice

According to the rational expectations school,a correctly anticipated expansionary monetary policy will

• A)increase prices and real output
• B)increase real output in the short run only
• C)have no effect on prices or real output
• D)decrease prices and real output
• E)lead only to a higher price level

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Definitions:

Long-run Equilibrium

A state in economics where all factors of production are fully adjusted to the market condition and all economic agents have no incentive to change their behavior.

Consumer Demand

The desire and willingness of consumers to purchase a certain quantity of goods or services at various price points, at a particular time.

Competitive Increasing-cost Industry

An industry where supply costs increase as output expands, often because resources become scarcer or harder to obtain as production grows.

Long-run Equilibrium

A state in which all firms in a perfectly competitive market earn zero economic profits, with no incentives for new firms to enter or existing firms to exit.