Under which of the following assumption can activist policies have sizable effects on aggregate demand?

Question

Quizplus · Accepted Answer

All three assumptions - rational inattention, infrequent information updates, and habit formation - can lead to deviations from perfect rationality in individual behavior, creating potential opportunities for activist policies to influence aggregate demand. Rational inattention means that individuals do not always absorb all available information and may ignore certain policy changes, but they may still respond to targeted and salient policies. Infrequent information updates mean that individuals do not immediately adjust their spending habits to changes in their income or prices, but may do so over time after being reminded of the changes. Habit formation means that individuals are not always fully rational in their consumption habits, as they may have inertia or preferences for the status quo, but may be influenced by policies that disrupt their existing patterns of behavior.

Under Which of the Following Assumption Can Activist Policies Have