Multiple Choice
-In the above figure, suppose the economy is currently in equilibrium at point C. Applying rational expectations theory, what happens if the Fed announces that it is decreasing the money supply and follows through on its statement?
A) The price level will increase.
B) Real Gross Domestic Product (GDP) per year will increase.
C) Real Gross Domestic Product (GDP) per year will decrease.
D) The price level will decrease.
Correct Answer:
Verified
Correct Answer:
Verified
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