According to rational expectations theory, which of the following is the best approach to lower the inflation rate?
A) preannounced stable government policies
B) unpredictable government policies
C) first predictable and then unpredictable government policies
D) None of these.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals will adjust their expectations of inflation based on their beliefs about government policies. Therefore, preannounced stable government policies would be the best approach to lower the inflation rate, as it would allow individuals to form consistent expectations and adjust their behavior accordingly. Unpredictable government policies or a combination of predictable and unpredictable policies would cause confusion and make it harder for individuals to form accurate expectations, potentially leading to further inflationary pressures.

According to Rational Expectations Theory, Which of the Following Is