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

question 8

Multiple Choice

If expectations are formed rationally,wages and prices are completely flexible in both the short run and the long run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP in

• A) the short run or the long run.
• B) neither the short run nor the long run.
• C) the short run,but not in the long run.
• D) the long run,but not in the short run.

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Definitions:

Nonmonetary Liability

Obligations that do not require a cash settlement, rather possibly settled through the transfer of other non-cash assets or services.

Product Warranty

A guarantee from the seller to the buyer that a product will perform to a certain standard or will be repaired or replaced during a specified period.

Market Rate

The prevailing interest rate available in the marketplace on deposits, debts, or loans.

Nominal Rate

The Nominal Rate is the interest rate stated on a loan or financial product, not taking into account inflation or other factors that could affect the real value of the interest.