With rational expectations, a policy that would decrease AD would certainly lead to:
A)higher inflation and lower unemployment in the short run.
B)lower inflation and higher unemployment in the short run.
C)higher inflation and no change in unemployment in the short run, if people's expectations were correct.
D)none of the above.

Question

With rational expectations, a policy that would decrease AD would certainly lead to:
A)​higher inflation and lower unemployment in the short run.
B)​lower inflation and higher unemployment in the short run.
C)​higher inflation and no change in unemployment in the short run, if people's expectations were correct.
D)​none of the above.

Quizplus · Accepted Answer

The Answer of With rational expectations, a policy that would decrease AD would certainly lead to:
A)​higher inflation and lower unemployment in the short run.
B)​lower inflation and higher unemployment in the short run.
C)​higher inflation and no change in unemployment in the short run, if people's expectations were correct.
D)​none of the above.

With Rational Expectations, a Policy That Would Decrease AD Would