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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