The Theory of Rational Expectations Contends That Policy Activism Is

question 121

Multiple Choice

The theory of rational expectations contends that policy activism is:

• A) not warranted, because we don't know enough about the workings of the economy to stabilize it.
• B) not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted.
• C) warranted because discretionary policies have a strong effect on real output.
• D) warranted because expectations are rational only in the short run.

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Definitions:

Folds

Structures formed by the bending and warping of rock layers under pressure during geological processes.

Metamorphic Rocks

Rocks that have undergone transformation in their mineral composition or texture due to high pressure and temperature, without melting.

Strike-Slip Fault

A geological fault where two blocks of the crust move horizontally past one another, usually along a vertical or near-vertical fracture.

Hogback

A narrow ridgeline with steep slopes on both sides, commonly formed from the erosion-resistant edge of a tilted sedimentary rock layer.