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, which of the following is likely to be the short-run result?
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.
Question 2
If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then:
a. real wages would fall.
b. output would decrease.
c. output would increase.
d. output would increase, but only if nominal wages were increased more rapidly than prices.
e. the expected inflation rate was less than the actual rate.
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