If the markets in the economy are characterized by rational expectations,then
A)predictable changes cause neither the AD nor the SAS curves to shift.
B)predictable changes in monetary policy are ineffective in changing output.
C)unpredictable monetary policy is ineffective in changing prices.
D)unpredictable fiscal policy is ineffective in changing prices.

Question

Quizplus · Accepted Answer

Rational expectations imply that individuals have a correct understanding of the macroeconomic environment and will adjust their behavior accordingly. Therefore, predictable changes in policies or other economic factors are already anticipated by market participants and thus have already been reflected in market prices. As a result, these changes will not cause a shift in either the AD or SAS curves.

If the Markets in the Economy Are Characterized by Rational