Statement I: According to the rational expectations theory,the prime economic mover is aggregate demand,not aggregate supply.
Statement II: The rational expectationists believed that the oil price shocks of 1973 and 1979 created declines in aggregate supply,lowering the natural level of GDP.

A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.

Rational Expectations Theory

The hypothesis that individuals form forecasts about the future based on all available information, including the understanding of economic policies, thus acting optimally on these expectations.

Aggregate Demand

The total demand for goods and services within a particular market or economy at a given price level and in a given time period.

Oil Price Shocks

Sudden and significant changes in the global price of oil, which can lead to economic instability and affect global markets.