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11 September, 10:46

According to Lucas and Sargent, workers and firms have rational expectations, and therefore if the Fed pursues a contractionarya contractionary monetary policy:

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  1. 11 September, 14:40
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    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.
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