Economists of the rational expectations school:
A)have no confidence in the ability of workers and firms to observe and react to economic events.
B)believe workers and firms behave the same regardless of what the Fed does.
C)have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices.
D)believe that effective monetary policy can shift the potential level of output to the right.
E)believe workers and firms make decisions based on what they think monetary policy will be in the future.

Question

Quizplus · Accepted Answer

Economists of the rational expectations school believe that workers and firms make decisions based on what they think monetary policy will be in the future. They assume that people have rational expectations, meaning they use all available information to form their expectations about the economy, including future policy actions by the central bank. This implies that changes in monetary policy may not have the desired effects if they are fully anticipated and incorporated into expectations.

Economists of the Rational Expectations School