Suppose an economist of the rational expectations school is giving advice to a policymaker.Which of the following is the piece of advice the economist would most likely give?
A) Do NOT use discretionary policy.
B) Do NOT use discretionary policy if activity lags are long.
C) Do NOT use fiscal policy if effectiveness lags are long.
D) Do NOT use monetary policy if implementation lags are long.

Question

Suppose an economist of the rational expectations school is giving advice to a policymaker.Which of the following is the piece of advice the economist would most likely give?  
A) Do NOT use discretionary policy. 
B) Do NOT use discretionary policy if activity lags are long. 
C) Do NOT use fiscal policy if effectiveness lags are long. 
D) Do NOT use monetary policy if implementation lags are long.

Quizplus · Accepted Answer

Rational expectations economists believe that individuals and markets adjust their behavior based on their expectations of future policies and economic conditions. As a result, they believe that discretionary policy can be ineffective or even counterproductive as it can disrupt these expectations and lead to unintended consequences. Therefore, they would advise against using discretionary policy and instead focus on creating a stable and predictable policy environment.

Suppose an Economist of the Rational Expectations School Is Giving