1. A conclusion of the theory ofrational expectations is that, in the short run,

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Question

1. A conclusion of the theory ofrational expectations is that, in the short run, the impact ofdiscretionary

fiscal policies designed to shift the ADcurve will:

a. result in no net change in AD oncepeople's expectations adjustments have beenaccounted

for.

b. shift AD in the opposite directionintended once people's expectations adjustmentshave

been accounted for.

c. be anticipated and compensated for,causing no significant effect on real or nominalGDP

or employment.

d. have to be a surprise to change realoutput in the intended direction.

a. they can eliminate inflation withoutcreating economic disturbances in themarketplace.

b. they can keep the national debt fromincreasing.

c. they can reduce the nation'sdependence on foreign oil.

d. they can reduce inflationaryexpectations and thereby reduce some ofinflation's

momentum.

a. that the general wage level fails tostay abreast of inflation.

b. that prices of finished goods risebut prices of raw materials are held constant bylong-term

contracts.

c. the capricious redistribution ofincome caused by unexpected inflation.

4. According to rational expectationstheory:

a. a large reduction in unemployment canbe achieved with a relatively small increase in

inflation.

b. people are not easily fooled bychanges in government fiscal policy.

c. inflation rates that rise 3percentage points each year will keep unemployment belowits

natural rate for a sustained period oftime.

2. D 3. A 4. D 5. A 6. B 7. B

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