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 or nominal GDP or employment.
d. have to be a surprise to change real output in the intended direction.
d
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Normally, a firm's borrowing cost is the expected real interest rate, which takes expected inflation into account. With price stickiness, however, the firm will consider only:
a. expected inflation. b. expected wages. c. the nominal rate of interest. d. the expected appreciation of the asset.
Let P be the price of a good and let I represent consumer income. Which of the following demand functions represents a luxury good with inelastic price response?
A) log(Q) = 4 – 2 log(P) + 2 log(I) B) log(Q) = 4 - 0.5 log(P) + 0.25 log(I) C) log(Q) = 4 - 0.25 log(P) + 2 log(I) D) log(Q) = 4 + 2 log(P) + 0.2 log(I)