rational expectations

1. If households and firms have rational expectations, is it possible for the unemployment rate to exceed the natural rate of unemployment? Explain.
2. Assume people and firms have rational expectations. Explain how each of the following events will affect aggregate output and the price level.
a. The Fed unexpectedly decreases the required reserve ratio.
b. Congress passes a tax reduction bill which will go into effect in one year and last for ten years.
c. The Fed announces it will decrease the supply of money.
d. Without notice, OPEC cuts oil production by 50 percent.
e. The government passes a previously unannounced emergency defense spending bill, authorizing an immediate $500 billion increase in funding.