Rational expectation theory implies that accurately anticipated change in aggregate demand:
A)will increase real GDP in the short run.
B)will affect real GDP and inflation only in the long run.
C)may affect nominal GDP but not real GDP in the short run.
D)will do none of the above.

Question

Rational expectation theory implies that accurately anticipated change in aggregate demand:
A)​will increase real GDP in the short run.
B)​will affect real GDP and inflation only in the long run.
C)​may affect nominal GDP but not real GDP in the short run.
D)​will do none of the above.

Quizplus · Accepted Answer

Rational expectation theory suggests that if changes in aggregate demand are accurately anticipated, people will adjust their behavior in advance. This means that while nominal GDP may be affected due to changes in the price level, real GDP, which is adjusted for inflation, will not be affected in the short run because individuals and businesses have already adjusted their actions based on their expectations.

Rational Expectation Theory Implies That Accurately Anticipated Change in Aggregate