The Main Policy Conclusion of the Rational Expectations Theory Is

question 143

Multiple Choice

The main policy conclusion of the rational expectations theory is

• A) fiscal policy lags are so long and variable that such policy is worthless, but monetary policy can stimulate output.
• B) monetary policy lags are so long and variable that such policy is worthless, but fiscal policy can stimulate output.
• C) both monetary and fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy.
• D) neither monetary nor fiscal policy will affect real output if firms and households correctly anticipate the effects of changes in government policy.

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Definitions:

Flexion

A movement that decreases the angle between two parts of the body, like bending a limb at a joint.

Abduction

The movement of a body part away from the midline of the body, such as moving an arm or leg sideways.

Adduction

The movement of a body part toward the central axis of the body or toward another body part, such as bringing the fingers together.

Balanced Diet

A diet that includes a variety of foods in the right proportions to provide all necessary nutrients for good health.