The rational expectations hypothesis suggests that monetary policy, even though it will affect the aggregate demand curve, might have no effect on real GDP.

Question

Quizplus · Accepted Answer

According to the rational expectations hypothesis, if individuals and firms have rational expectations about future economic conditions, they will adjust their behavior in response to monetary policy actions, potentially offsetting the impact of those actions on aggregate demand and real GDP. Therefore, it is possible that monetary policy may have little or no effect on real GDP under the rational expectations assumption.

The Rational Expectations Hypothesis Suggests That Monetary Policy, Even Though