If the Government Accelerates Money Supply Growth and Enlarges the Budget

question 70

Multiple Choice

If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will

• A) ignore the policy until it exerts an observable impact on prices, output, and employment.
• B) quickly take steps to adjust their decision making in light of the more expansionary policies.
• C) be fooled at the outset but eventually adjust their decision making in accordance with the change in policy.
• D) be unaware that this policy change has been implemented until a higher rate of inflation is observed.

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Definitions:

Households

Units consisting of one or more people who live in the same dwelling and share meals or living accommodation; considered as a single entity for economic analysis.

Satisfaction

The feeling of fulfillment or pleasure derived from achieving a goal, satisfying a desire, or meeting a need.

Service Sector

The segment of the economy that provides intangible goods or services to consumers, including healthcare, education, financial services, and retail.

Labor Force

A rephrased definition: This consists of all working-age individuals who are currently employed or actively seeking employment.