Refer to the following figure when answering the following questions.
Figure 13.5: AS/AD Model
-Consider Figure 13.5. If the Fed sets a higher inflation target, under rational expectations, the economy moves from point ________ to point ________.
A) a; c slowly
B) a; c instantly
C) a; d instantly
D) b; d slowly
E) b; c instantly

Question

Refer to the following figure when answering the following questions.
Figure 13.5: AS/AD Model 
-Consider Figure 13.5. If the Fed sets a higher inflation target, under rational expectations, the economy moves from point ________ to point ________.
A) a; c slowly 
B) a; c instantly 
C) a; d instantly 
D) b; d slowly 
E) b; c instantly

Quizplus · Accepted Answer

Under rational expectations, if the Fed sets a higher inflation target, the economy would adjust instantly to the new expectations, moving from point a to point c.

Refer to the Following Figure When Answering the Following Questions