The primary reason why the Fed cannot systematically surprise the public with its monetary policy is
A)the nonneutrality of money.
B)the presence of productivity shocks that generate real business cycles independent of the monetary side of the economy.
C)the presence of rational expectations among the public.
D)the presence of propagation mechanisms within the economy.

Question

Quizplus · Accepted Answer

Rational expectations mean that individuals make predictions about future economic variables based on all available information. Therefore, if the Fed were to systematically surprise the public with its monetary policy, people would quickly adjust their expectations and the surprise would no longer be effective in achieving the Fed's desired outcome.

The Primary Reason Why the Fed Cannot Systematically Surprise the Public