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:

Standard Deviation

An indicator of the degree of spread or variability among a collection of figures.

One-sample T Statistic

A statistic used to compare the mean of a single sample to a known or hypothesized population mean.

P-value

The chance of getting test findings that are at least as unusual as the ones actually seen, given that the null hypothesis holds.

Null Hypothesis

A default hypothesis that there is no effect or difference, and any observed change in the data is due to random chance.