According to the theory of rational expectations, inflationary expectations encourage businesses and households to their demand for loanable funds in order to borrow and make planned expenditures increase. higher; reduce higher; increase lower; reduce lower; increase Dr. Mangla knows.that international flows of fund can affect the Fed's monetary policy. If there is upward pressure on U.S. interest rates that can be offset by foreign of funds, the Fed may not feel compelled to use a inflows; loose inflows; tight outflows; loose outflows; tight none of the above