Which of the Following Is False

question 55

Multiple Choice

Which of the following is false?

• A)​Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes.
• B)​If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run.
• C)​An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not.
• D)​Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run.

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Definitions:

Economic Profits

Profits calculated by subtracting both the explicit and implicit costs from a firm's total revenues; a measure of earnings exceeding the opportunity costs.

Entry Of Firms

The process by which new companies enter into an industry, adding to the competition.

Government Subsidies

Financial support provided by the government to organizations, businesses, or individuals, aimed at promoting certain activities or reducing costs.

Long-Run Equilibrium

A situation where all factors of production and costs are variable, and all firms in a market are earning zero economic profit, indicating no incentive for market entry or exit.