According to the Theory of Rational Expectations, Expansionary Fiscal Policy

question 93

Multiple Choice

According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:

• A)cause wage expectations to adjust downward immediately following the lower price level.
• B)increase the real wage rate in the long run.
• C)cause a permanent decline in the natural rate of unemployment.
• D)decrease the real wage rate in the long run.
• E)cause wage expectations to adjust upward immediately following the higher price level.

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Definitions:

Inference

The act of reaching a conclusion based on evidence and reasoning rather than explicit statements.

Cultivate

To develop or improve by education or training; to foster growth or development.

Positive Critical Thinking

The application of critical analysis and evaluation in a constructive and optimistic manner to solve problems or make decisions.

Mindset

A set of attitudes or beliefs that shape one's way of thinking and influence one's actions or responses to situations.