Rational expectation theory implies that accurately anticipated change in aggregate demand:
A)will increase RGDP in the long run.
B)will affect RGDP and inflation only in the long run.
C)may affect RGDP but not nominal GDP.
D)will tend to be offset by the actions of input suppliers as they react to their inflation expectations.

Question

Rational expectation theory implies that accurately anticipated change in aggregate demand:
A)​will increase RGDP in the long run.
B)​will affect RGDP and inflation only in the long run.
C)​may affect RGDP but not nominal GDP.
D)​will tend to be offset by the actions of input suppliers as they react to their inflation expectations.

Quizplus · Accepted Answer

Rational expectation theory suggests that if changes in aggregate demand are accurately anticipated, individuals (including input suppliers) will adjust their behavior in response to their expectations about inflation or other economic conditions. This means that any potential effects on real GDP (RGDP) or inflation might be neutralized or offset by these anticipatory actions, rather than leading to long-term changes in RGDP or affecting it in a way that is not counterbalanced.

Rational Expectation Theory Implies That Accurately Anticipated Change in Aggregate