If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:
A)a decrease in both aggregate demand and short-run aggregate supply.
B)an increase in short-run aggregate supply that will maintain full employment.
C)higher prices that will reduce aggregate demand to its original level.
D)a decrease in short-run aggregate supply that will maintain full employment.

Question

If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:
A)​a decrease in both aggregate demand and short-run aggregate supply.
B)​an increase in short-run aggregate supply that will maintain full employment.
C)​higher prices that will reduce aggregate demand to its original level.
D)​a decrease in short-run aggregate supply that will maintain full employment.

Quizplus · Accepted Answer

The Answer of If people have rational expectations and correctly estimate the effects of a change in government policy, when the economy is initially at full employment, any anticipated increase in aggregate demand will result in:
A)​a decrease in both aggregate demand and short-run aggregate supply.
B)​an increase in short-run aggregate supply that will maintain full employment.
C)​higher prices that will reduce aggregate demand to its original level.
D)​a decrease in short-run aggregate supply that will maintain full employment.

If People Have Rational Expectations and Correctly Estimate the Effects