The policy ineffectiveness proposition
A)asserts that anticipated changes in monetary policy cannot affect real aggregate output.
B)rules out output effects from policy surprises.
C)implies that an anticipated contractionary monetary policy cannot reduce the rate of inflation.
D)implies that an anticipated expansionary monetary policy will not cause the price level to rise.

Question

Quizplus · Accepted Answer

The policy ineffectiveness proposition, associated with the rational expectations theory, suggests that if economic agents anticipate changes in monetary policy, they will adjust their behavior accordingly, rendering the policy ineffective in changing real aggregate output.

The Policy Ineffectiveness Proposition