Rational expectations theory suggests that the success of an anti-inflationary policy depends on the
A)adoption of a gold standard.
B)passage of a tax cut.
C)credibility of the policy in the eyes of the public.
D)imposition of wage and price controls.

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals form their expectations about future economic conditions based on all available information, including their expectations about government policies. If the public believes that an anti-inflationary policy is credible and will be maintained over time, they will adjust their expectations and behavior accordingly, reducing inflationary pressures. Thus, the success of an anti-inflationary policy depends on the credibility of the policy in the eyes of the public. Choices A, B, and D are not relevant to the theory.

Rational Expectations Theory Suggests That the Success of an Anti-Inflationary