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:

Company Owes

The financial obligations or debts that a business is legally required to repay to creditors, suppliers, or other entities.

Operating Profit

The amount left over from revenue once all costs and expenses are subtracted.

General Expenses

The overhead costs not directly tied to the production of goods or services, including rent, utilities, and office supplies.

Inventory

The total quantity of goods and materials a business holds for the purpose of resale or production, tracked for management and operational efficiency.