Question

Which of the following is consistent with advocates of rational expectations? If consumers fully anticipate an increase in interest rates, then:A. Real GDP will increase by the value of the multiplier

B. Real GDP will decrease by the value of the multiplier
C. Real GDP will not change
D. Price level will increase
E. Unemployment will increase

Answer 1

Real GDP will not change

Step-by-step explanation:

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Answer 2

A. Real GDP will increase by the value of the multiplier

Step-by-step explanation:

The theory of rational expectations states that people make decisions based on previous experiences, available information and how logical a choice seems.

Real Gross Domestic Product (GDP) is the total output an economy produces in a year, that has been adjusted for inflation.

Advocates of rational expectations believe that if consumers expect interest rates to increase, this will lead to an increase in real GDP by the value of the multiplier.