Rational expectations theory suggests that:
A)monetary policy that is expected will have the greatest impact on changing output levels.
B)policies that are expected will have no effect on output or unemployment.
C)economic agents take into account past actions only to make their current decisions.
D)discretionary policies are best at bringing about changes in output.

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals and firms use all available information, including expectations of future policy, to make decisions. Therefore, if a policy is anticipated, its effects are already factored into economic decisions, rendering it ineffective in changing output or unemployment.

Rational Expectations Theory Suggests That