6. New classical macroeconomics Aa Aa Suppose the economy is initially in macroe

Question

6. New classical macroeconomics Aa Aa Suppose the economy is initially in macroeconomic equilibrium at potential output. The central bank feels that the current inflation rate is unacceptably high and enacts contractionary monetary policy in order to reduce inflation. According to the natural rate hypothesis, the contractionary monetary policy will lead to in the unemployment rate and in the inflation rate. According to rational expectations theory, if the public is aware of the central bank's decision, the contractionary monetary policy will lead to in the unemployment rate and in the inflation rate. a permanent increase no change a permanent decrease a temporary increase a temporary decrease hypothetical economy in macroeconomic equilibrium. The vertical aggregate supply (AS) s cycle theorists' early view of aggregate supply.

Explanation / Answer

6. INCREASE , DECREASE
NO CHANGE

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