According to rational expectations theory, predictable expansionary monetary and fiscal policies to reduce the unemployment rate are:
A)desirable because the result is to lower inflation.
B)harmful because the only result is higher inflation.
C)ineffective on the price level.
D)None of these.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals and firms will anticipate the effects of expansionary policies, leading to adjustments in wages and prices that result in higher inflation without reducing unemployment.

According to Rational Expectations Theory, Predictable Expansionary Monetary and Fiscal