The rational expectations theory indicates that expansionary policy will
a. stimulate real output in the long run but not in the short run.
b. expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
c. equalize real and nominal interest rates during lengthy periods of inflation.
d. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.
D
You might also like to view...
Which of the following is a drawback of including proxy variables in a regression model?
A. It leads to misspecification analysis. B. It reduces the error variance. C. It increases the error variance. D. It exacerbates multicollinearity.
The United States produces both automobiles and computers more efficiently than Mexico. Nevertheless, it is possible that both nations would benefit from trade in these items. The reason for this is
A. the law of comparative advantage. B. the inflation-unemployment trade-off. C. externalities. D. the cost disease of personal services. E. attempts to repeal the law of supply and demand.