According to Lucas and Sargent, workers and firms have rational expectations, and therefore if the Fed pursues a contractionar

Question

3 years ago

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ya contractionary monetary policy:

1 answer:

Daniel [21] · Answer 1 · 2022-08-17T16:17:06+03:00

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Answer:

If the FED pursues a contractionary policy, the economic agents' expectations will make them immediately adjust their inflation expectations down.

Contractionary monetary policy leads to a reduction of the money supply and a reduction in the government spending.

According to Lucas and​ Sargent, workers and firms have rational​ expectations, and therefore if the Fed pursues a contractionar