If Firms Have Rational Expectations and If They Set Prices

question 14

Essay

If firms have rational expectations and if they set prices and wages on this basis, then on average what should be true about prices and wages?

Interpret the effects of changes in aggregate expenditure components on GDP.

Understand the relationship between real GDP, aggregate expenditure, and planned investment.

Calculate and interpret the simple spending multiplier effect.

Analyze the effect of changes in income levels on imports and exports.

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Definitions:

Primary Ideas

Fundamental or core concepts that form the basis of a theory, argument, or process.

Themes

Recurrent and significant patterns or ideas in a dataset, piece of literature, or artistic work.

Conflicts

Disagreements or disputes between individuals or groups due to differing needs, beliefs, or interests.

Nonverbal Behavior

Refers to the communication methods that do not involve words, such as facial expressions, body language, and gestures.