If the public has rational expectations, an attempt to increase ...

[naturalchemist]

If the public has rational expectations, an attempt to increase aggregate demand to stimulate the economy will:
 a. be less inflationary in the short run than if the public alters their expectations slowly in response to changes in government policy.
  b. be more effective if the public alters their expectations quickly in response to changes in government policy.
  c. be ineffective if the shift in aggregate demand is predictable.
 d. all of the above.

Question 2

Suppose, before the Asian financial crisis, the Thai baht was fixed against the dollar at a rate of 26 bahts for one U.S. dollar. If the exchange rate were allowed to float freely, the market would then set the rate at 35 bahts for one dollar. Under these circumstances, we say that the baht was:
 a. about to appreciate.
  b. fixed below its par value.
  c. overvalued.
  d. undervalued.
  e. revalued.

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Answer to Question 1

c

Answer to Question 2

c