The rational expectations school advocates the passive rule of a fixed-growth-rate monetary policy because
A)we don't have enough information to pursue an active policy
B)the economy is not in bad enough shape to require active intervention
C)then the Federal Reserve Board would be superfluous and we could eliminate a large bureaucracy
D)people render active policy ineffective by figuring out what it's going to be and taking actions to offset it
E)they prefer to put their major emphasis on an active fiscal policy

Question

Quizplus · Accepted Answer

The rational expectations school believes that people are able to predict the outcomes of an active monetary policy, and therefore take actions to offset it. This renders active policy ineffective, and thus they advocate for a passive rule of a fixed-growth-rate monetary policy.

The Rational Expectations School Advocates the Passive Rule of a Fixed-Growth-Rate