According to the rational expectations theory, monetary policy is fully anticipated.Therefore, what is the only factor affected by the policy?
A) the level of real GDP
B) the level of real investment
C) the price level
D) the level of real consumption

Question

According to the rational expectations theory, monetary policy is fully anticipated.Therefore, what is the only factor affected by the policy?  
A) the level of real GDP 
B) the level of real investment 
C) the price level 
D) the level of real consumption

Quizplus · Accepted Answer

According to the rational expectations theory, economic agents have rational expectations about the future behavior of prices and central bank policy, which means that monetary policy changes are fully anticipated. As a result, the only variable that can be affected by monetary policy in the short term is the price level. The level of real GDP, real investment, and real consumption are determined by long-term supply-side factors such as technology, natural resources, labor, and capital.

According to the Rational Expectations Theory, Monetary Policy Is Fully