Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for

Question

Quizplus · Accepted Answer

The assumption of pure competition and complete flexibility of all prices and wages implies that market forces will automatically adjust the economy to full employment and potential output without the need for government intervention. Therefore, the theory supports passive policy making, which involves limited government intervention in the economy.

Adding the Assumption of Pure Competition and Complete Flexibility of All