According to rational expectations theory,
A)there is absolutely nothing government can do, even in the short run, to reduce the economy's unemployment rate.
B)the government can use fiscal policy such as increased government spending or lower tax rates to reduce unemployment.
C)a modern extension of Keynesian economics exists.
D)discretionary fiscal policy is essential for prolonged growth.
E)market participants can be fooled in the long run by monetary and fiscal policy rules.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals and firms use all available information to make economic decisions, implying that government interventions like fiscal policy cannot systematically reduce unemployment, even in the short run, because people will anticipate the effects of these policies.

According to Rational Expectations Theory