A conclusion of the theory of rational expectations is that, in the short run, the impact of discretionary fiscal policies designed to shift the AD curve will:
a. result in no net change in AD once people's expectations adjustments have been accounted for
b. shift AD in the opposite direction intended once people's expectations adjustments have been accounted for.
c. be anticipated and compensated for, causing no significant effect on real GDP or employment if people's anticipations are correct.
d. have to be anticipated to change real output in the intended direction.
c
You might also like to view...
The marginal revenue product of capital is the
a. same as the marginal revenue product of labor if all resources are used b. same as the marginal physical product of capital in a perfectly competitive market c. change in the interest rate when a firm borrows $1 to buy new capital d. change in total revenue generated by an additional $1 of loanable funds e. price of adding one more machine to production
Because fiscal policy affects the quantity that the government borrows in financial capital markets, it not only affects aggregate demand, but it can also affect _____________ rates.
a. interest b. employment c. inflation d. wage