Brandon,an economist,is a believer of the rational expectations school.According to him,which of the following is likely to affect the levels of output and employment in an economy?
A)An expansionary monetary policy,if it is fully anticipated
B)A recessionary monetary policy,if it is fully anticipated
C)A monetary policy that is unanticipated
D)A fiscal policy that is anticipated
E)The Fed's announcement of no change in monetary policy

Question

Quizplus · Accepted Answer

Unanticipated monetary policy can affect the levels of output and employment because it catches economic agents off guard, leading to adjustments in consumption, investment, and production decisions. Rational expectations theory posits that if a policy is fully anticipated, agents will have already adjusted their behavior in expectation of the policy, thus neutralizing its impact on output and employment.

Brandon,an Economist,is a Believer of the Rational Expectations School