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:

Net New Equity

The amount of equity capital that is generated by a company through the sale of new shares, after deducting any costs associated with issuing the new equity.

Dividends Paid

The portion of a company's earnings distributed to shareholders, usually on a regular basis.

Operating Expenses

The costs related to the day-to-day operations of a business, excluding cost of goods sold.

Cost of Goods Sold

The total cost of manufacturing or purchasing the goods a company has sold during a period.