If People Have Rational Expectations and Correctly Estimate the Effects

question 77

Multiple Choice

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:

• A)a decrease in both aggregate demand and short-run aggregate supply.
• B)an increase in short-run aggregate supply that will maintain full employment.
• C)higher prices that will reduce aggregate demand to its original level.
• D)a decrease in short-run aggregate supply that will maintain full employment.
• E)no shift in either aggregate demand or short-run aggregate supply.