What did proponents of rational expectations argue about the sacrifice ratio and why?
A) The sacrifice ratio would be high because it was rational for people not to immediately change their expectations.
B) The sacrifice ratio would be high because people might adjust their expectations quickly if they found anti-inflation policy credible.
C) The sacrifice ratio could be low because it was rational for people not to immediately change their expectations.
D) The sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

Question

Quizplus · Accepted Answer

Proponents of rational expectations argued that the sacrifice ratio could be low because people might adjust their expectations quickly if they found anti-inflation policy credible. According to them, if people believed that the government was committed to reducing inflation, they would adjust their expectations accordingly, leading to lower sacrifice ratio.

What Did Proponents of Rational Expectations Argue About the Sacrifice