According to a Theory That Relies on the Rational Expectations

question 270

Multiple Choice

According to a theory that relies on the rational expectations hypothesis and the assumption that wages and prices are flexible, why do anticipated expansionary monetary actions NOT boost real GDP?

• A) Anticipated expansionary monetary policy actions do not increase aggregate demand.
• B) The short-run aggregate supply curve shifts upward simultaneously with the rightward shift of aggregate demand.
• C) The short-run aggregate supply curve shifts downward simultaneously with the upward shift of aggregate demand.
• D) The higher interest rates associated with anticipated expansionary monetary policy actions will dampen investment spending.

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Definitions:

Psychoanalysis

A therapeutic approach that aims at exploring unconscious thoughts and feelings, originally developed by Sigmund Freud.

Behaviorism

A psychological theory that focuses on observable behaviors and disregarding internal processes, emphasizing the learning process through rewards and punishments.

Cognitive Psychology

A branch of psychology that studies mental processes including how people think, perceive, remember, and learn.

Natural Drive

Intrinsic motivations or biological imperatives that guide behavior, such as hunger, thirst, or the drive for survival.