With Rational Expectations, a Policy That Would Decrease AD Would

question 7

Multiple Choice

With rational expectations, a policy that would decrease AD would certainly lead to:

• A)​higher inflation and lower unemployment in the short run.
• B)​lower inflation and higher unemployment in the short run.
• C)​higher inflation and no change in unemployment in the short run, if people's expectations were correct.
• D)​none of the above.

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Definitions:

Direct Labor Workers

Employees who are directly involved in the production of goods, their wages are considered direct labor costs.

Denominator Level

The base or reference level used in various accounting or financial ratios, indicating the scale or volume for allocation or comparison.

Budget Variance

Budget variance is the difference between the budgeted or planned financial activity and the actual financial performance.

Fixed Manufacturing Overhead

Costs associated with production that do not change with the level of output, such as rent, salaries, and equipment depreciation.