What Does an Unexpected Decrease in the Growth Rate of the Money

question 203

Essay

What does an unexpected decrease in the growth rate of the money supply do to inflation and unemployment in the short-run? What does it do to inflation and unemployment in the long run?

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Definitions:

Rational Expectations Theory

The hypothesis that individuals make predictions about future economic activities based on past and current information and act rationally on those expectations.

Anticipation

The act of expecting or foreseeing something, often involving preparatory action or adjustments based on predictions about future events or trends.

Inflation

The speed at which the overall price level of goods and services increases, diminishing buying power.

Monetarists

Economists who believe that variations in the money supply have major influences on national output in the short run and the price level over longer periods, as well as on inflation.