Author Question: Which of the following is false? a. Rational expectations theory suggests that government economic ... (Read 78 times)

joe · **on:** Jun 30, 2018

Which of the following is false?
a. Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes.
b. If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run.
c. An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not.
d. Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run.

Question 2

Which of the following resulted in the financial crisis in 2007-08?
a. Falling international reserves
b. Short-term investments made by China in the US
c. Lack of transparency
d. Bad loans on U.S. mortgages
e. Fixed rates of interest