The rational expectations hypothesis implies that discretionary macro-policy will:
A)be ineffective, even in the short run.
B)be effective in the short run but ineffective in the long run.
C)be effective both in the short run and long run.
D)make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that individuals use all available information to form expectations about economic variables, making discretionary macro-policy ineffective as people anticipate and counteract policy effects.

The Rational Expectations Hypothesis Implies That Discretionary Macro-Policy Will