Including expected inflation in the price adjustment model
A) negates the purported long-run neutrality of monetary policy, because expectations are altered by Fed behavior.
B) negates the purported long-run neutrality of fiscal policy, because expectations are altered by the behavior of the president and the Congress.
C) causes the path that displays the neutrality of either fiscal or monetary policy only to cycle rather than converge directly to the status quo.
D) diminishes the importance of outside shocks to the long-run neutrality of fiscal but not monetary policy.
E) none of the above.

Question

Quizplus · Accepted Answer

The Answer of Including expected inflation in the price adjustment model
A) negates the purported long-run neutrality of monetary policy, because expectations are altered by Fed behavior.
B) negates the purported long-run neutrality of fiscal policy, because expectations are altered by the behavior of the president and the Congress.
C) causes the path that displays the neutrality of either fiscal or monetary policy only to cycle rather than converge directly to the status quo.
D) diminishes the importance of outside shocks to the long-run neutrality of fiscal but not monetary policy.
E) none of the above.

Including Expected Inflation in the Price Adjustment Model