With Rational Expectations, a Policy That Would Increase AD Would

question 96

Multiple Choice

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

• A)higher inflation and higher real output in the short run.
• B)higher inflation and lower real output in the short run.
• C)higher inflation and an indeterminate effect on real output in the short run, if people's expectations were correct.
• D)higher inflation and no change in real output, if people's expectations were correct.

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