Under the assumption of rational expectations, real GDP is determined by

Question

Quizplus · Accepted Answer

Under the assumption of rational expectations, real GDP is determined by the long-run aggregate supply curve. This is because in the long run, prices and wages adjust to changes in the economy, resulting in a stable rate of output. Fiscal and monetary policies may affect output in the short run, but in the long run, they only affect the price level, not real GDP.

Under the Assumption of Rational Expectations, Real GDP Is Determined