As shown in Exhibit 11 , if people behave according to rational expectations theory, an increase in the aggregate demand curve from \(A D_{1}\) to \(A D_{2}\) will cause a. labor to adjust nominal wages sluggishly. b. the aggregate supply curve to remain at \(S R A S_{1}\). c. the price level to eventually rise from 100 to 110. d. none of the above.

When the aggregate demand curve increases from \(AD_1\) to \(AD_2\), there will be a higher demand for goods and services in the economy. According to rational expectations theory, individuals are expected to anticipate this change and make decisions based on this information. #Step 3: Analyzing the impact on labor and nominal wages#

According to rational expectations theory, adjustments to economic changes should be instant and perfect. However, in reality, there can be some short-run price stickiness. Due to this, it is possible that the short-run aggregate supply curve \(SRAS_1\) may not immediately change when aggregate demand increases. This can lead to temporary disequilibrium in the economy. So, option b. can be true in the short run but not in the long run. #Step 5: Analyzing the impact on the price level#

Based on the analysis of the rational expectations theory and its effects on labor, nominal wages, aggregate supply, and price level after an increase in aggregate demand: - Option a. is correct in the short run. - Option b. is correct in the short run but not in the long run. - Option c. is correct in the long run. - Option d. is not correct, as the other options capture some truths about the behavior of the economy under rational expectations theory. Thus, considering the context of the exercise and the results of our analysis, the correct answer is d. none of the above, as none of the options fully capture the long-run implications of a shift in the aggregate demand curve under rational expectations theory.