32. The rational expectations hypotheses implies that discretionary macroeconomic policy is:

		a. relatively effective in both the short run and long run
		b. relatively effective in the short run but ineffective in the long run
		c. relatively ineffective in both the short run and long run
		d. effective in the long run since decision makers will continually make predictable, systematic errors

33. The modern view of the Phillips curve suggests that

			a. when inflation is less than anticipated, unemployment will fall below the natural rate
			b. when inflation is steady, actual unemployment will equal the natural rate of unemployment
			c. systematic demand stimulus policies will be unable to affect prices in the long run
			d. there will be a trade-off between inflation and unemployment in the long run

34. A $100 billion decrease in government purchases would:

		a. increase aggregate demand by $300 billion if MPC = 2/3
		b. decrease aggregate demand by $500 billion in MPC = 0.8
		c. increase aggregate demand by $200 billion if MPC = 0.5
		d. decrease aggregate demand by $400 billion if MPC = 0.4

35. A shift to a more expansionary monetary policy will:

		a. increase the long term growth rate of the economy
		b. reduce the future rate of inflation
		c. stimulate output and employment almost immediately
		d. stimulate output and employment, but only after a time lag that is generally long and variable

36. Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?:

		a. a higher price level
		b. a higher level of real output
		c. both a higher price level and a higher level of real output
		d. a lower price level

37. When the Fed decreases the money supply, interest rates:

		a. rise
		b. fall
		c. are unaffected
		d. rise and then fall

38. The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

		a. lower interest rates, decrease in aggregate demand, and a reduction in output
		b. lower interest rates, increase in aggregate demand, and an expansion in output
		c. higher interest rates, decrease in aggregate demand, and a reduction in output
		d. higher interest rates, increase in aggregate demand, and an expansion in output

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The detailed answer for the above question is provided below 32 The rational expectations hypothesis implies that discretionary macroeconomic policy is c relatively ineffective in both the short run a... View the full answer