If People Have Rational Expectations and Correctly Estimate the Effects

question 38

Multiple Choice

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated decrease in aggregate demand will result in:

• A)​a decrease in both aggregate demand and short-run aggregate supply.
• B)​an increase in short-run aggregate supply that will maintain full employment.
• C)​higher prices that will reduce aggregate demand to its original level.
• D)​a decrease in short-run aggregate supply that will maintain full employment.

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Definitions:

Solution Set

The complete set of all possible solutions that satisfy a given equation or system of equations.

Set Notation

A systematic way of representing a set and its elements using braces and specific symbols to denote operations and relationships.

Intersection Symbol

Generally represented by ∩, it denotes the common elements between two sets.

Union Symbol

In set theory, a symbol (∪) that denotes the union of two sets, meaning it combines all the elements from both sets, excluding duplicates.