A macroeconomic policy action will have a longer-term effect on aggregate demand if people

Question

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Habit formation in consumption implies that people have a pattern of behavior that takes time to change, meaning that they will continue to consume at similar levels even after a macroeconomic policy action has occurred. Therefore, the effect on aggregate demand will be longer-term. On the other hand, rational expectations, rational inattention, and frequent updates in decision-making suggest that people will adjust their behavior quickly in response to changes in macroeconomic policy, leading to shorter-term effects on aggregate demand.

A Macroeconomic Policy Action Will Have a Longer-Term Effect on Aggregate