Assuming Adaptive Expectations,a "Cold Turkey" Reduction in AD by Policymakers

question 142

Multiple Choice

Assuming adaptive expectations,a "cold turkey" reduction in AD by policymakers will initially reduce

• A)output but not inflation.
• B)inflation but not output.
• C)output less than inflation.
• D)both output and inflation.

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Definitions:

Perfect Competitor

A theoretical market structure characterized by many sellers and buyers, homogeneous products, and free entry and exit, leading to efficient pricing and resource allocation.

Long Run

In economics, the long run refers to a period in which all factors of production and costs are variable, allowing for adjustment to changes in market conditions.

Marginal Revenue

The extra revenue obtained by selling an additional unit of a product or service.

Marginal Cost

The increase in cost resulting from the manufacture of one extra product or service unit.