The rational expectations theory implies that an accurately anticipated change in aggregate demand:
A)will increase real GDP in the long run.
B)will affect real GDP and inflation only in the long run.
C)will affect real GDP in the short run but not nominal GDP.
D)will affect nominal GDP in the short run but not real GDP.
E)will affect real GDP in the long run but not nominal GDP.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that if people accurately anticipate a change in aggregate demand, they will adjust their behavior in advance. This means that the change will primarily affect nominal variables (like the price level, which influences nominal GDP) in the short run, as people adjust prices and wages in anticipation. Real GDP, which is adjusted for inflation and reflects the actual volume of goods and services produced, is less likely to be affected in the short run due to these anticipatory adjustments.

The Rational Expectations Theory Implies That an Accurately Anticipated Change