According to the Rational Expectations Theory, Expansionary Monetary Policy Will

Multiple Choice

According to the rational expectations theory, expansionary monetary policy will

A) reduce inflation.
B) lead to inflation and the higher rate of inflation will be quickly anticipated.
C) reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion.
D) accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment.