If Expectations Are Formed Rationally,wages and Prices Are Completely Flexible

question 145

Multiple Choice

If expectations are formed rationally,wages and prices are completely flexible in the short run and policy is correctly anticipated,increases in aggregate demand will

• A) cause lower short-run price level increases than a Keynesian would expect.
• B) cause higher short-run price level increases than a Keynesian would expect.
• C) not impact the general price level.
• D) produce both increases and decreases in the price level at different times.

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Definitions:

Spruce Goose

The nickname for the Hughes H-4 Hercules, famously known as the largest wooden airplane ever constructed and flown only once.

Fixed in Supply

Pertains to goods or resources that have a limited or unchangeable quantity available, regardless of demand.

High-Speed Rail

A type of rail transport that operates significantly faster than traditional rail traffic, using specialized rolling stock and dedicated tracks.

Cost of Living

The amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes, and healthcare.