Figure 17-3
-In the figure above, suppose we are working under the assumption of the Lucas model. Suddenly, monetary policy becomes more expansionary and every firm believes that the higher prices bid on their product is not being enjoyed by any other firm. We would picture this as a movement between points
A) A and C.
B) A and B.
C) D and B.
D) D and A.
E) A and D.

Question

Figure 17-3 
-In the figure above, suppose we are working under the assumption of the Lucas model. Suddenly, monetary policy becomes more expansionary and every firm believes that the higher prices bid on their product is not being enjoyed by any other firm. We would picture this as a movement between points
A) A and C. 
B) A and B. 
C) D and B. 
D) D and A. 
E) A and D.

Quizplus · Accepted Answer

In the Lucas model, an expansionary monetary policy leads firms to mistakenly perceive higher prices as an increase in demand for their own products, causing them to increase output. This is depicted as a movement from point A (initial equilibrium) to point C (higher output and price level).

Figure 17-3 -In the Figure Above, Suppose We Are Working Under the Working