When Consumers and Producers Operate Under Rational Expectations

question 7

Multiple Choice

When consumers and producers operate under rational expectations,

• A) stabilization policy affects only the short-run aggregate supply curve.
• B) stabilization policy affects only the long-run aggregate supply curve.
• C) shifts in aggregate demand are perfectly anticipated by market participants, negating any attempt by policymakers to shift aggregate demand.
• D) stabilization policy does not affect the short-run aggregate supply curve.

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Definitions:

Inventory

The complete inventory of products and materials a company possesses, meant for sale or to be used in manufacturing.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including material and labor costs.

Accounts Receivable

Funds that customers owe to a business for products or services provided but for which payment has not yet been received.

Unearned Sales Revenues

A liability on a company's balance sheet that represents revenue received before the company has delivered goods or services.