The macroeconomic theory that because workers and firms take all information into account, only unexpected changes in the money supply affect aggregate output is called _____ theory.
A)real business cycle
B)rational expectations
C)new classical
D)supply-side

Question

Quizplus · Accepted Answer

The theory described in the question is the rational expectations theory, which argues that economic agents (consumers, workers, firms) have rational expectations and take all available information into account when making their economic decisions. Therefore, only unexpected changes in the money supply (i.e. changes that were not anticipated by economic agents) would affect aggregate output. The other options (A, C, D) are different macroeconomic theories that do not necessarily involve rational expectations as a key assumption.

The Macroeconomic Theory That Because Workers and Firms Take All