According to rational expectations,
A) the Fed should focus its policies on interest rates.
B) the Fed should focus its policies on inflation.
C) the Fed should focus its policies on unemployment.
D) the Fed is unable to influence real economic activity.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals form expectations about the future based on all available information, including the anticipated effects of monetary policy. Therefore, it argues that systematic monetary policy cannot systematically influence real variables like output or employment in the long run, as people will adjust their behavior in anticipation of policy effects, neutralizing the real impact of such policies.

According to Rational Expectations