Which of the following is an important implication of the rational expectations argument?
A) Since people form their expectations using all available information, the use of monetary policies to eliminate output gaps will lead to inflation.
B) Since any consistent set of monetary policies will be learned and anticipated by a population with rational expectations, policies designed to influence the economy to a level of production other than the potential real GDP will be ineffective.
C) Although people may revise their expectations about the price level and future economic activity, they cannot act on these changes because in reality, wages and prices are sticky. Thus, policy intervention is necessary.
D) Policymakers must constantly monitor economic activity and revise their economic policy goals to keep up with changing expectations of a population with rational expectations.

Question

Quizplus · Accepted Answer

The rational expectations argument suggests that people form expectations using all available information, including information about anticipated government policies. Therefore, any consistent set of monetary policies will be learned and anticipated by the population, making policies designed to influence the economy to a level of production other than the potential real GDP ineffective. This has important implications for policymakers, who must adjust their policies to take into account the expectations of the population.

Which of the Following Is an Important Implication of the Rational