Rational Expectations Theory Implies That The

question 12

Multiple Choice

Rational expectations theory implies that the:

• A) aggregate demand curve is vertical.
• B) long-run aggregate supply curve is vertical.
• C) long-run aggregate supply curve is horizontal.
• D) long-run aggregate supply curve is quite flat.

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Definitions:

Perfect Competition

A market structure characterized by many buyers and sellers, freedom of entry and exit, and a homogeneous product.

Perfectly Elastic

A situation in economic theory where the quantity demanded or supplied of a good changes infinitely in response to any change in price.

Demand Curve

A diagram depicting how the demand for an item varies with its price, generally characterized by a downward trajectory.

Marginal Revenue

The additional earnings gained by selling an extra unit of a good or service.