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With Rational Expectations, a Policy That Would Increase AD Would

Question 104

Multiple Choice

With rational expectations, a policy that would increase AD would lead to:


A) ​higher inflation and higher real output in the short run.
B) ​higher inflation and lower real output in the short run.
C) ​higher inflation and an indeterminate effect on real output in the short run, if people's expectations were correct.
D) ​higher inflation and no change in real output, if people's expectations were correct in the short-run.

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