If People Have Rational Expectations and Correctly Estimate the Effects

Multiple Choice

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:

A) ​a decrease in both aggregate demand and short-run aggregate supply.
B) ​an increase in short-run aggregate supply that will maintain full employment.
C) ​higher prices that will reduce aggregate demand to its original level.
D) ​a decrease in short-run aggregate supply that will maintain full employment.