Under rational expectations and no nominal rigidities, aggregate output is sensitive to ___________ supply and ___________ demand shocks.
a) Anticipated, anticipated
(b) Anticipated, unanticipated
(c) Unanticipated, anticipated
(d) Unanticipated, unanticipated
The answer is (d) unanticipated, unanticipated
There is no nominal rigidity, so an expected demand shock would lead to a change in expected prices. Both Aggregate Demand and Supply curves would move so that output remains at full employment. All real variables will remain unchanged.
So only an unanticipated demand shock would cause output to change in the short run.
On the supply side, only unanticipated shocks would cause changes in output, eg. sudden increase in oil prices.