According to the rational expectations hypothesis, monetary policy can have effects on such variables as real Gross Domestic Product (GDP) in the short run
A) only when the policy is anticipated.
B) only when the policy is unsystematic and unanticipated.
C) regardless of whether the policy is anticipated or unanticipated.
D) when the central bank implements policy actions as anticipated.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that monetary policy will only affect real variables like GDP in the short run if it is unsystematic and unanticipated. This is because anticipated policy actions are already factored into economic agents' decision-making, negating any real effects.

According to the Rational Expectations Hypothesis, Monetary Policy Can Have