With Rational Expectations, a Policy That Would Decrease AD Would

question 84

Multiple Choice

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

• A)​lower inflation and lower unemployment in the short run if people underestimated the effect of the policy on inflation.
• B)​lower inflation and higher unemployment in the short run if people underestimated the effect of the policy on inflation.
• C)​lower inflation and an indeterminate effect on unemployment in the short run, if people's expectations were correct.
• D)​both (b) and (c).

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Definitions:

Financial Information

Data pertaining to the financial status and performance of an entity, including income, expenses, assets, and liabilities.

Internal Users

Individuals within an organization who use financial information to make decisions, including management, employees, and internal stakeholder groups.

External Users

Individuals or entities outside a company who utilize its financial information, such as investors and creditors.

Separate Legal Entity

A principle acknowledging that a corporation has a separate legal existence from its shareholders, protecting them from the company's debts.