If Market Participants Expect the Fed to Increase Aggregate Demand

question 63

Multiple Choice

If market participants expect the Fed to increase aggregate demand in response to a drop in aggregate demand, then,

• A)the job of policymakers will be much easier.
• B)input prices will respond much more quickly than otherwise.
• C)if the Fed does nothing, the decrease in input prices that cause short run aggregate supply to shift rightward will take longer.
• D)markets will automatically move to equilibrium very quickly.

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Definitions:

Conditioned Stimulus

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A process in behavior psychology that increases the likelihood of a behavior by following it with a positive or negative stimulus.

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