According to the rational expectation view, the government can change real output:
A)with appropriate, well-publicized fiscal and monetary policies.
B)with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run.
C)only by making unexpected changes in aggregate demand.
D)without ever affecting the price level.

Question

According to the rational expectation view, the government can change real output:
A)​with appropriate, well-publicized fiscal and monetary policies.
B)​with appropriate, well-publicized fiscal and monetary policies in the short run, but not in the long run.
C)​only by making unexpected changes in aggregate demand.
D)​without ever affecting the price level.

Quizplus · Accepted Answer

According to the rational expectations view, individuals have accurate expectations about future economic conditions, including government policies. Therefore, changes in aggregate demand that are expected by individuals will not have a lasting effect on real output in the long run. The government can only change real output by making unexpected changes in aggregate demand.

According to the Rational Expectation View, the Government Can Change