If the Public Has Correct Rational Expectations and the Fed

question 127

Multiple Choice

If the public has correct rational expectations and the Fed reduces the level of banking reserves, it would be expected to result in:

• A)​a higher level of real output and a lower price level.
• B)​a lower price level but no change in real output.
• C)​a higher price level and a reduced level of real output.
• D)​a higher price level but no change in real output.