Question

If workers and firms have rational expectations, they understand that ________ monetary policy will raise the inflation rate, so actual inflation ________ expected inflation. contractionary; will be equal to expansionary; will be less than expansionary; will be equal to contractionary; will be less than expansionary; will be greater than

Answer 1

expansionary; will be equal to

Step-by-step explanation:

Remember, monetary policies are basically divided into:

1. expansionary monetary policy, and
2. contractionary monetary policy.

Indeed, as the name implies, the expansionary monetary policy is meant to in a sense boost up economic growth in terms of reducing interest rates thereby theoretically increasing spending and also leading to an increase in the money supply. When there is an increase in the money supply, this thus leads to an increased inflation rate, which would be expected if workers and firms have rational expectations.