Place \"MOn,\" \"RET\" or \"Main\" beside the statements that most closely refle

Question

Place "MOn," "RET" or "Main" beside the statements that most closely reflect monetarist rational expectations or mainstream views
a. Anticipated changes in aggregate demand effect only the price level; they have no effect on real output
b. downward wage inflexability means that declines in aggregate demand can cause long lasting recession
c. Changes in money supply M increase PQ; at first only, Q rises because norminal wages are fixed, but once workers adapt their expectations to ne wrealities, P rises and Q returns to its normal level
d. Fiscal and monetary policies smooth out the business cycle
e. The Fed should increase the money supply at a fixed annual rate.

Explanation / Answer

a. Anticipated changes in aggregate demand effect only the price level; they have no effect on real output
RET
b. downward wage inflexability means that declines in aggregate demand can cause long lasting recession
MOn
c. Changes in money supply M increase PQ; at first only, Q rises because norminal wages are fixed, but once workers adapt their expectations to ne wrealities, P rises and Q returns to its normal level
Mon
d. Fiscal and monetary policies smooth out the business cycle
RET
e. The Fed should increase the money supply at a fixed annual rate.
Main

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