Proponents of rational expectations theory have argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectation, the sacrifice ratio could be as small as what?
A) 0
B) 1
C) 3
D) 5

Question

Quizplus · Accepted Answer

Proponents of rational expectations theory argue that in the most extreme case, if policymakers are credibly committed to reducing inflation, and if rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be zero. This is because there would be no need for a period of high unemployment to lower inflation expectations if it is expected to be lowered in the near future.

Proponents of Rational Expectations Theory Have Argued That, in the Most