According to the rational expectations model, when does active policy have an impact on aggregate output?
A) only when active policy is expansionary
B) only when active policy is contractionary
C) only when active policy is unannounced
D) only when the economy has a contractionary gap

Question

According to the rational expectations model, when does active policy have an impact on aggregate output?  
A) only when active policy is expansionary 
B) only when active policy is contractionary 
C) only when active policy is unannounced 
D) only when the economy has a contractionary gap

Quizplus · Accepted Answer

Active policy impacts aggregate output when it is unannounced because rational expectations assume individuals make forecasts based on all available information, including anticipated policy moves. Unannounced policies can surprise individuals, affecting their behavior and thus aggregate output.

According to the Rational Expectations Model, When Does Active Policy