Suppose that monetary policymakers announced that they were going to make a serious effort to fight inflation. A few years later the inflation rate has been reduced, but there had also been a serious recession. Which of the following could we conclude with certainty?
A)We could conclude that the rational expectations hypothesis is false.
B)We could conclude that the rational expectations hypothesis is true.
C)We could conclude that the policymakers lacked credibility.
D)No conclusion about the rational expectations theory or the policymakers' credibility can be drawn with certainty.

Question

Quizplus · Accepted Answer

While we can conclude that the monetary policymakers were successful in reducing inflation, the occurrence of a serious recession alongside this outcome makes it difficult to draw any conclusions about the rational expectations theory or the credibility of the policymakers with certainty. Moreover, it is possible that other factors, such as external economic shocks, may have contributed to the recession, making it challenging to isolate the effects of the policymakers' actions on the economy. Therefore, no conclusive statement can be made without further analysis.

Suppose That Monetary Policymakers Announced That They Were Going to Make