With Rational Expectations, a Correctly Anticipated Policy That Would Increase

question 4

Multiple Choice

With rational expectations, a correctly anticipated policy that would increase AD would lead to:

• A)higher inflation and lower unemployment in the long run.
• B)higher inflation and higher unemployment in the short run.
• C)higher inflation and no change in unemployment in the short run.
• D)lower inflation and lower unemployment in the short run.
• E)higher inflation and higher unemployment in the long run.

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Definitions:

Depreciable Asset

An asset subject to depreciation, which is the spreading out of its cost over the duration of its useful life.

Units-of-production Depreciation

A method of depreciation that allocates an asset's cost based on its usage, units produced, or hours operated during a fiscal period.