Question

1a) If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents’ expectations is ________ and therefore ________ the effectiveness of monetary or fiscal policy.

A) Say’s Law B) short-run economics C) Keynesian economic

1b) If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents’ expectations is ________ and therefore ________ the effectiveness of monetary or fiscal policy.

A)slow; increases B) immediate; precludes C) based on historic information; always improves

1c) If U.S. goods are relatively cheaper compared with goods of foreign places, then U.S. exports are likely to rise. This would make the aggregate demand curve ________.

A) shift to the left B) remain the same C) shift to the right

1d) Which of the following is a cause for a recessionary gap?

A) Prices are low.B) Consumption is on the decline. C) Government spending has increased.

Answer 1

1b) If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents' expectations is _ _and therefore the effectiveness of monetary or fiscal policy. C) based on historic information; always improves Reason: Rational expectations are based on historical data and help in making appropriate monetary and fiscal policies in the future 1c) If U.S. goods are relatively cheaper compared with goods of foreign places, then U.S. exports are likely to rise. This would make the aggregate demand curve C) shift to the right Reason: Since AD would increase, shifting the AD curve to the right 1d) Which of the following is a cause for a recessionary gap? B) Consumption is on the decline. Reason: A fall in consumption would shift the aggregate expenditure line down, thereby reducing output below the full employment level, leading to a recessionary gap