Brandon, an economist, is a believer of the rational expectations school. According to him, which of the following is likely to affect the levels of output and employment in an economy?
A) an expansionary monetary policy, if it is fully anticipated
B) a recessionary monetary policy, if it is fully anticipated
C) a monetary policy that is unanticipated
D) a fiscal policy that is anticipated
E) the Fed's announcement of no change in monetary policy

Question

Quizplus · Accepted Answer

Unanticipated monetary policies are likely to affect the levels of output and employment because they catch economic agents off guard, leading to adjustments in consumption, investment, and other economic activities. Anticipated policies, on the other hand, are often already factored into the decisions of rational agents, thus having a muted effect on the economy.

Brandon, an Economist, Is a Believer of the Rational Expectations