In the Friedman–Lucas money surprise model, suppose that the central bank wants to reduce the price...

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In the Friedman–Lucas money surprise model, suppose that the central bank wants to reduce the price level. Suppose the central bank has two options: (i) announce in advance that the money supply will decrease; (ii) surprise the public with a decrease in the money supply. Which option is preferable? Explain with the aid of diagrams.

David · Accepted Answer

In Friedman-Lucas money surprise model, if central bank wants to reduce the price level 
then surprise the public with a decrease in the money supply is a good option.

In the Friedman–Lucas money surprise model, suppose that the central bank wants to reduce the price level. Suppose the central bank has two options: (i) announce in advance that the money supply will...

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