The reasoning behind the new classical argument that the effects of macroeconomic policies might be distorted by the adjustment of business and household behaviors in anticipation of policymakers' strategies is based on:
A) the supply-side effect.
B) the private sector effect.
C) classical economic theory.
D) rational expectations.

Question

Quizplus · Accepted Answer

The concept of rational expectations suggests that individuals and businesses make decisions based on their rational outlook, available information, and past experiences. Therefore, if they anticipate changes due to macroeconomic policies, they will adjust their behaviors in ways that might counteract the intended effects of those policies. This adjustment can lead to outcomes different from what policymakers expect, highlighting the importance of considering how expectations shape economic decisions.

The Reasoning Behind the New Classical Argument That the Effects