Ms.Jones is a professor at a university.She strongly supports the rational expectations theory.She is likely to believe that the only time active policy has an impact on aggregate output is when:
A)an expansionary policy is implemented.
B)a recessionary policy is implemented.
C)policy changes are unannounced.
D)the economy has a recessionary gap.
E)the economy has an expansionary gap.

Question

Quizplus · Accepted Answer

Ms. Jones supports the rational expectations theory, which asserts that individuals are forward-looking and make economic decisions based on all available information, including their expectations of future policy changes. Therefore, in order for active policy to have an impact on aggregate output, policy changes must be unannounced to surprise individuals and alter their expectations. If policy changes are announced in advance, individuals will adjust their behavior accordingly, nullifying the impact of the policy change on aggregate output.

MsJones Is a Professor at a University