If People Have Rational Expectations and Correctly Estimate the Effects

question 38

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 decrease 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.

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Definitions:

Excess Inventory

Inventory levels exceeding the demand, leading to increased storage costs and potential obsolescence.

Operations Improvement

Operations improvement involves strategies and actions aimed at boosting the efficiency, productivity, and overall performance of the operational aspects of a business.

Inventory Management

The process of ordering, storing, tracking, and controlling inventory to ensure the right quantity and quality of stock.

Efficiency and Effectiveness

Terms that relate to the extent to which objectives are achieved (effectiveness) and the relation between the output and the resources used to produce it (efficiency).