When consumers and producers operate under rational expectations,
A) stabilization policy affects only the short-run aggregate supply curve.
B) stabilization policy affects only the long-run aggregate supply curve.
C) shifts in aggregate demand are perfectly anticipated by market participants, negating any attempt by policymakers to shift aggregate demand.
D) stabilization policy does not affect the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

When consumers and producers operate under rational expectations, they can perfectly anticipate shifts in aggregate demand, making it difficult for policymakers to shift aggregate demand through stabilization policies. Therefore, choice C is the correct answer.

When Consumers and Producers Operate Under Rational Expectations