Rational expectations theory implies that the:
A) aggregate demand curve is vertical.
B) long-run aggregate supply curve is vertical.
C) long-run aggregate supply curve is horizontal.
D) long-run aggregate supply curve is quite flat.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals adjust their expectations about future events based on all available information, including past events and current policies. This means that in the long run, wages and prices will adjust to changes in the economy and the long-run aggregate supply curve will become vertical. Therefore, choice B is the correct option. The other options do not accurately reflect the implications of rational expectations theory.

Rational Expectations Theory Implies That The