According to the rational expectation view,does the government have the ability to control the level of real output and unemployment?
A) Only in the SR if it makes unexpected changes in aggregate demand.
B) Only in the SR if it announces plans well in advance, so that expectations are affected.
C) Only in the LR if it shifts AS instead of AD.
D) Only in the LR if it uses monetary policy instead of fiscal policy.

Question

Quizplus · Accepted Answer

According to the rational expectation view, individuals have rational expectations about the future and adjust their behavior accordingly. Therefore, any government policy that is anticipated by the public will result in a shift in expectations and will have no effect on the economy in the long run. However, if the government makes unexpected changes in aggregate demand, it may affect output and unemployment in the short run. Therefore, the government can only control the level of real output and unemployment in the short run through unexpected changes in aggregate demand.

According to the Rational Expectation View,does the Government Have the Ability