The Rational Expectations Theory Indicates That Expansionary Policy Will

question 46

Multiple Choice

The rational expectations theory indicates that expansionary policy will

• A) stimulate real output in the long run but not in the short run.
• B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
• C) equalize real and nominal interest rates during lengthy periods of inflation.
• D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact.

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Definitions:

Flashbulb Memories

Vivid, detailed memories of significant or emotional events that feel as if they were recorded with a camera's flash; these memories often include where one was and what one was doing at the time of the event.

Eidetic Images

Vivid and detailed mental images that can be recalled with high accuracy, often referred to as photographic memory.

Elaborative Rehearsals

A memory technique that involves thinking about the meaning of the information to be remembered or relating the information to other knowledge, thus enhancing recall.

Visual Information

Data received by the eyes that is processed by the visual system to form images, enabling the perception of the world around us.