Refer to the scenario above. Which of the following will happen in equilibrium?
A) Firm A will use Strategy X, and Firm B will use Strategy Y.
B) Firm A will use Strategy Y, and Firm B will use Strategy X.
C) Both the firms will use Strategy X.
D) Both the firms will use Strategy Y.
B
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According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers
A) feel more secure about their financial position. B) want to sell stocks and spend the proceeds before stock prices fall. C) believe that their wages will increase due to increased profitability of firms. D) can now afford more expensive imports.
According to the rational expectations theory,
a. on average people have very little idea of what to expect from government policy makers. b. people form expectations by focusing only on the private sector. c. people do not consider likely government policies when forming expectations. d. people form expectations, in part, by considering the probable future effects of changes in government policy.