Rational expectations theory suggests that the Federal Reserve and other policymakers must fool the public if their policies are to have short-term effects.

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Rational expectations theory posits that individuals form expectations about the future based on all available information, including the anticipated effects of policy changes. Therefore, for policymakers like the Federal Reserve to influence economic outcomes in the short term, their actions must be unexpected by the public; otherwise, the effects of their policies will already be incorporated into economic decisions.

Rational Expectations Theory Suggests That the Federal Reserve and Other