A Conclusion of the Theory of Rational Expectations Is That

question 93

Multiple Choice

A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:

• A)​result in no net change in AD once people's expectations adjustments have been accounted for.
• B)​shift AD in the opposite direction intended once people's expectations adjustments have been accounted for.
• C)​be anticipated and compensated for, causing no significant effect on real or nominal GDP or employment.
• D)​have to be a surprise to change real output in the intended direction.

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Definitions:

Pain Signals

Pain signals are neurological transmissions indicating harm or potential damage to the body, alerting the brain to discomfort or injury.

Sensory Adaptation

The process by which our senses adjust to different levels of stimulation, allowing us to notice changes in the environment more than constant stimuli.

Odour

A distinctive smell, especially an unpleasant one, perceived by the olfactory nerve system.

Sensory Adaptation

The procedure through which receptors sensing the environment become less alert to unchanged stimuli through time.