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.
Correct Answer:
Verified
Correct Answer:
Verified
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