Under the Rational Expectations Hypothesis, Which of the Following Is

question 116

Multiple Choice

Under the rational expectations hypothesis, which of the following is the most likely effect of a shift to a more expansionary monetary policy?

• A) In the short run, the real rate of output will be unaffected, but in the long run, it will increase.
• B) In the short run, the real rate of output will increase, but in the long run, it will be unchanged.
• C) There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher.
• D) In the short run, the impact on the real rate of output is uncertain; in the long run, it will remain unchanged.

---

Definitions:

Hostile Witnesses

Witnesses whose testimony is not favorable to the party who called them and thus can be cross-examined by that party.

Interview Summary

A concise overview of key points, responses, and insights gained from a conducted interview.

Domestic Consumption

The aggregate sum of products and services used within the boundaries of a nation.

Domestic Production

The total value of all goods and services produced within a country's borders.