if only unanticipated changes in the money supply affect real gdp, the public has rational expectations, and everyone has the same information about the state of the economy, then:

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10-11-2022
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if only unanticipated changes in the money supply affect real gdp, the public has rational expectations, and everyone has the same information about the state of the economy, then:

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kumarravichandra kumarravichandra · Answer 1 · 2022-11-16T13:18:13+01:00

If only unexpected changes in the money supply have an impact on real GDP, people have reasonable expectations, and everyone is aware of the economy's current state, then monetary policy cannot be used to consistently stabilize output.

Real GDP can occasionally be higher than potential GDP. This would indicate that the economy is OVERHEATED, resources are being overused, and a slowdown is necessary.

When Real GDP is lower than Potential GDP, it indicates that resources are not being used to their full potential.

Real GDP can occasionally match potential GDP. The economy is in equilibrium, making this the ideal state.

The purpose of the aforementioned is to demonstrate how Real GDP varies around Potential GDP due to the Business Cycle.

The Business Cycle is a four-stage cycle that the economy experiences over time. It has two phases: a Recession and an Expansion, and two turning points: a Peak and a Trough.

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