Final answer:
According to the theory of rational expectations, individuals and businesses anticipate that the effects of a shift in aggregate demand on output and employment are temporary, leading to quicker adjustments and potentially shorter recessions.
Step-by-step explanation:
The theory of rational expectations suggests that during a shift in aggregate demand, individuals and businesses who are forward-thinking will anticipate that the impact on output and employment will only be short-lived, rather than permanent. As a result, these agents will expect a long-term change in the price level. Firms and workers with rational expectations have no incentive to alter their behavior significantly in response to temporary changes since they anticipate future outcomes. As such, one might infer that recessions would be shorter because individuals and companies would quickly adjust to the anticipated price level, avoiding prolonged periods of decreased output and employment.