Advocates of the rational-expectations approach predict that a credible policy to lower inflation will result in a loss of output that is _____ than expected based on the sacrifice ratio.
A)larger
B)smaller
C)the same
D)sometimes larger and sometimes slower

Question

Quizplus · Accepted Answer

A credible policy to lower inflation can lead to smaller output loss than expected because rational agents adjust their expectations quickly, reducing the need for prolonged economic adjustments.

Advocates of the Rational-Expectations Approach Predict That a Credible Policy