According to rational expectations economists, as a result of an increase in aggregate demand due to an expansionary monetary policy, real output and employment would not increase because said policy would be offset by higher prices

a) Using aggregate supply and demand curves illustrate the different effects on output of demand-pull and cost-push inflation. b) Show using an aggregate supply and demand curve diagram, how an initial increase in aggregate demand though monetary policy may have no effect on output if workers with "rational expectations" seek wage rises to compensate for the expected higher price level. Accessibility: Good to go W

Use the following diagram to answer the next question. Price Levell LRAS Y* AD1 AD2 Multiple Choice AD3 A51 Real GDP browser=0&launchUrl=https%253A 252F%252Fnewconnect.mheducation.com Assume the economy is initially at the full employment level of real GDP. If there is a decrease in imports, the Fed should increase money demand. decrease money demand Saved

(i) Present a model with rational expectations and the Friedman–Lucas supply function. If policy makers and the public have the same information, can stabilization policies in a stochastic context change aggregate demand and output (i) in the short run, (ii) in the long run?(ii) Present a model with rational expectations and the new Keynesian supply function. If policy makers and the public have the same information, can stabilization policies in a stochastic context affect aggregate demand and output (i) in the short run, (ii) in the long run?(iii) Why do models with rational expectations have difficulty in explaining the persistence of output from its trend and unemployment from the natural rate? What are some of the reasons given for this persistence? If this persistence were incorporated in them, what would be their implications for the effectiveness of monetary policy: could activist monetary policy stabilize output and the unemployment rate? Discuss in the context of a…