According to a Theory That Relies on the Rational Expectations

question 270

Multiple Choice

According to a theory that relies on the rational expectations hypothesis and the assumption that wages and prices are flexible, why do anticipated expansionary monetary actions NOT boost real GDP?

• A) Anticipated expansionary monetary policy actions do not increase aggregate demand.
• B) The short-run aggregate supply curve shifts upward simultaneously with the rightward shift of aggregate demand.
• C) The short-run aggregate supply curve shifts downward simultaneously with the upward shift of aggregate demand.
• D) The higher interest rates associated with anticipated expansionary monetary policy actions will dampen investment spending.

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