According to the rational expectations model, the only time active policy has an impact on aggregate output is when
A)it is expansionary
B)it is contractionary
C)it is unannounced
D)the economy has a contractionary gap
E)the economy has an expansionary gap

Question

Quizplus · Accepted Answer

In the rational expectations model, individuals use all available information to form expectations about economic variables. Therefore, only unanticipated or unannounced policies can affect aggregate output, as anticipated policies are already factored into individuals' expectations and decisions.

According to the Rational Expectations Model, the Only Time Active