Which of the Following Is an Important Implication of the Rational

question 31

Multiple Choice

Which of the following is an important implication of the rational expectations argument?

• A) Since people form their expectations using all available information, the use of monetary policies to eliminate output gaps will lead to inflation.
• B) Since any consistent set of monetary policies will be learned and anticipated by a population with rational expectations, policies designed to influence the economy to a level of production other than the potential real GDP will be ineffective.
• C) Although people may revise their expectations about the price level and future economic activity, they cannot act on these changes because in reality, wages and prices are sticky. Thus, policy intervention is necessary.
• D) Policymakers must constantly monitor economic activity and revise their economic policy goals to keep up with changing expectations of a population with rational expectations.

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Definitions:

Delusions of Reference

A false belief where individuals think that mundane occurrences or remarks are specifically directed at them in a meaningful way.

Penetrance

In genetics, the proportion of people with a given genetic endowment that actually express the effects of this endowment.

Meiosis

A type of cell division that reduces the chromosome number by half, creating four haploid cells, each genetically distinct from the parent cell that gave rise to them.

Gene Dominance

A phenomenon in genetics where one allele masks the expression of another allele in determining phenotypic traits.