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.

---

Definitions:

Operating Income

Income from a company's main business activities, excluding expenses such as interest and taxes.

Fixed Costs

Costs that do not vary with production volume, such as rent, salaries, and insurance premiums.

Sales Mix

Refers to the combination of different products or services that a company offers, influencing overall sales and profitability.

Unit Contribution Margin

The difference between the selling price per unit and the variable costs per unit, representing how much each unit sold contributes to covering fixed costs and generating profit.