If Rational Expectations Theory Is Correct, Then Any Increase in Aggregate

question 200

Multiple Choice

If rational expectations theory is correct, then any increase in aggregate demand caused by announced expansionary policies

• A) leads to a short-run increase in real output but no long-run increase.
• B) causes the inflation rate to fall.
• C) is offset by rising inflationary expectations, causing the short-run aggregate supply curve to immediately shift to the left.
• D) is offset by rising inflationary expectations, causing the short-run aggregate supply curve to slowly shift to the left.

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