If Expectations Are Formed Rationally,wages and Prices Are Completely Flexible

question 145

Multiple Choice

If expectations are formed rationally,wages and prices are completely flexible in the short run and policy is correctly anticipated,increases in aggregate demand will

• A) cause lower short-run price level increases than a Keynesian would expect.
• B) cause higher short-run price level increases than a Keynesian would expect.
• C) not impact the general price level.
• D) produce both increases and decreases in the price level at different times.

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