Which of the following hypotheses states that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes?
A) policy irrelevance hypothesis
B) rational expectations hypothesis
C) life cycle hypothesis
D) real business cycle hypothesis

Question

Quizplus · Accepted Answer

The rational expectations hypothesis states that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of future and current policy changes. The policy irrelevance hypothesis asserts that monetary policy cannot affect the real economy in the long run, the life cycle hypothesis asserts that an individual's consumption and savings decisions are based on their lifecycle, and the real business cycle hypothesis asserts that economic fluctuations are due to productivity shocks.

Which of the Following Hypotheses States That People Combine the Effects