According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

Question

Quizplus · Accepted Answer

According to the rational expectations theory, people have rational and forward-looking expectations regarding future events. In the case of anticipated changes in monetary policy, individuals will adjust their behavior in advance, leading to a vertical short-run Phillips curve since expected inflation should be equal to actual inflation in the long run. This means that inflation will not change in response to changes in unemployment or output. Therefore, there will be no trade-off between inflation and unemployment in the long-run.

According to the "Rational Expectations" School of Thought in Macroeconomics,the