With Rational Expectations, a Policy That Would Decrease AD Would

question 7

Multiple Choice

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

• A)​higher inflation and lower unemployment in the short run.
• B)​lower inflation and higher unemployment in the short run.
• C)​higher inflation and no change in unemployment in the short run, if people's expectations were correct.
• D)​none of the above.

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Definitions:

Proportion

A statistical measure that represents the fraction of the total number of outcomes in a given category relative to the total number of outcomes in all categories.

Observations

Data collected or measured during an experiment or survey. They are the individual values recorded during the statistical study.

Fair Die

An idealized die where each face has an equal probability of landing up, implying fairness and randomness in the outcome.

Expected Proportion

The predicted likelihood of an event occurring in a specific category or group.