According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce the unemployment rate are:
A)useless in the long run.
B)useless in the short run.
C)ineffective on the price level.
D)None of these.

Question

Quizplus · Accepted Answer

Adaptive expectations theory suggests that people adjust their expectations based on past experiences. In the long run, people will anticipate the effects of expansionary policies, leading to adjustments in wages and prices, thus nullifying the impact on unemployment.

According to Adaptive Expectations Theory, Expansionary Monetary and Fiscal Policies