If an economist of the rational expectations school were advising a policy maker,the advice most likely to be given would be:
A)Don't use discretionary policy if recognition lags are long.
B)Don't use discretionary policy if activity lags are long.
C)Don't use fiscal policy if effectiveness lags are long.
D)Don't use monetary policy if implementation lags are long.
E)Don't use discretionary policy.

Question

Quizplus · Accepted Answer

One of the main principles of the rational expectations school is that policy actions are often ineffective or counterproductive because individuals can anticipate the actions and adjust their behavior accordingly. Therefore, a rational expectations economist is likely to advise against the use of discretionary policy altogether, as it may cause more harm than good.

If an Economist of the Rational Expectations School Were Advising