Author Question: The rational expectations theory indicates that expansionary policy will: a. stimulate real output ... (Read 90 times)

beccaep · **on:** Jun 30, 2018

The rational expectations theory indicates that expansionary policy will:
a. stimulate real output in the long run but not in the short run.
b. expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
c. equalize real and nominal interest rates during lengthy periods of inflation.
d. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.

Question 2

Which of the following is correct?
a. People whose nominal incomes rise faster than the rate of inflation gain purchasing power.
b. Real income equals nominal income divided by the CPI as a decimal.
c. The percentage change in real income equals the percentage change in nominal income minus the percentage change in CPI.
d. All of these.