The rational expectations approach differs from the perfect foresight approach, since the rational expectations approach assumes that
A)the monetary policy multiplier is non-zero in the long run, but only if monetary policy is anticipated
B)the monetary policy multiplier is non-zero in the long run if monetary policy is unanticipated
C)the monetary policy multiplier is non-zero in the short run if monetary policy is unanticipated
D)people make systematic errors
E)after a disturbance, GDP never returns to trend

Question

Quizplus · Accepted Answer

The rational expectations approach posits that individuals form their expectations about the future based on all available information and that they learn from past mistakes. This means that the impact of monetary policy is more likely to be significant in the short run if it is unanticipated, because anticipated policy moves are already factored into economic decisions.

The Rational Expectations Approach Differs from the Perfect Foresight Approach