If people have rational expectations a monetary policy contraction that is announced and is credible could ?

A. reduce inflation with little or no increase in unemployment
B. Increase inflation but would decrease unemployment by an unusually large amount
C. increase inflation with little or no decrease in unemployment
D. reduce inflation but it would increase unemployment by an unusually large amount

Correct Answer: reduce inflation with little or no increase in unemployment ✔

Last Updated: June 18, 2019