Rational Expectation Theory Implies That Accurately Anticipated Change in Aggregate

question 12

Multiple Choice

Rational expectation theory implies that accurately anticipated change in aggregate demand:

• A)​will increase real GDP in the short run.
• B)​will affect real GDP and inflation only in the long run.
• C)​may affect nominal GDP but not real GDP in the short run.
• D)​will do none of the above.

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Definitions:

Portfolio Beta

A measure of the volatility of a portfolio relative to the market as a whole.

Security A

This is not a specific financial term; often "Security A" could refer to a generic or hypothetical security in examples or educational content.

Firm's Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 means the stock is more volatile than the market, while a beta less than 1 means it is less volatile.

Single-Factor Market Model

A financial model that explains a security's returns as the outcome of a single market-wide factor and the security's sensitivity to that factor.