Econ Q.

According to adaptive expectations and rational expectations, respectively, is the price level in the long run most likely to change or not change in response to a shift in macroeconomic policy? Adaptive expectations Rational expectations A. Change Change B. Change Not change C. Not change Change D. Not change Not change Anybody can explain that to me? The ans is A

Imagine if the government announced that it was multiplying the supply of currency by a factor of ten over the next few months, and then printed and circulated the money to do so. The result would be a lot more bills chasing the same amount of goods in the economy, causing nominal prices to increase – regardless of people’s expectations. With respect to expansionary monetary policy, I think expectations go more to how much collateral damage is done to the economy as the price level increases (e.g., whether it spends some time in recession as prices increase), not to the long-run consequence of inflation itself.

its on wikipedia…