With Rational Expectations, a Policy That Would Increase AD Would

question 104

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 in the short-run.

---

Definitions:

Reparations Payments

Reparations payments are compensations made by a defeated country after a war to the victors or to civilians who suffered losses, as a way of acknowledging damages and responsibility for the conflict.

German Repayment

Refers to Germany's obligation to pay reparations for damages and costs associated with World War I and II.

Consumer Society

A society characterized by the extensive buying and selling of goods and services, where the economy and culture are focused on consumer needs, desires, and spending habits.

Modern Advertising

Involves the use of contemporary media and technologies to promote products, services, and brands to target audiences.