Assume Everyone in an Economy Uses Rational Expectations

question 142

Essay

Assume everyone in an economy uses rational expectations. Now suppose that the Federal Reserve wants to reduce the inflation rate. Given the goals of the Fed, do you think the Fed should announce its policy to reduce the inflation rate? Explain.

---

Definitions:

Material

Physical substances from which objects can be made or concerning the physical rather than the spiritual or intellectual aspects.

Retention

The ability to preserve and recall information or experiences over time.

Memory

The mental process of encoding, storing, and retrieving information.

Learning

A systematic, relatively permanent change in behavior that occurs through experience.