If expectations are rational, how can government influence unemployment in a predictable way?
A)with the normal tools, used in the normal fashion
B)with fiscal policy; monetary policy will not work
C)with monetary policy; fiscal policy will not work
D)with surprise changes in policy only
E)with carefully planned and announced changes in policy only

Question

Quizplus · Accepted Answer

Rational expectations imply that people use all available information to forecast future economic variables. Therefore, predictable policy changes are anticipated and do not affect unemployment. Only surprise changes can have an impact.

If Expectations Are Rational, How Can Government Influence Unemployment in a Predictable