Under the Rational Expectations Hypothesis, Which of the Following Is

question 1

Multiple Choice

Under the rational expectations hypothesis, which of the following is the most likely short-run effect of a move to expansionary monetary policy?

• A) a higher general level of prices but no change in real output
• B) a higher general level of prices and an expansion in real output
• C) no change in the general level of prices and a reduction in real output
• D) no change in either the general level of prices or real output

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Definitions:

Technique

A systematic procedure, method, or art applied by a particular task, performance, or craft.

Conformity

The act of matching attitudes, beliefs, and behaviors to group norms or pressures.

Asch

Solomon Asch was a psychologist best known for his work on conformity experiments, demonstrating how group pressure could influence individuals to conform to incorrect answers.

Milgram

Refers to Stanley Milgram, an American social psychologist known for his controversial experiment on obedience to authority figures, conducted in the 1960s.