Ans: D) an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.
Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is
A) an increased price level in the short run, but no effect on price level in the long run.
B) decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run.
C) increased real Gross Domestic Product (GDP) and increased employment in the long run.
D) an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.
Economics
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