The Rational Expectations Hypothesis Implies That Use of Discretionary Macro-Policy

question 160

Multiple Choice

The rational expectations hypothesis implies that use of discretionary macro-policy as a stabilization tool will

• A) be ineffective, even in the short run.
• B) be effective in the short run but ineffective in the long run.
• C) be effective both in the short run and long run.
• D) make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.

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Definitions:

Categorical Variable

A variable that represents groups or categories, which are not numerical.

Regression Equation

An equation that describes the average relationship between a dependent variable and one or more independent variables.

Coefficient Of Determination

A metric quantifying the amount of variation in a dependent variable accounted for by one or more independent variables within a regression model.

Interaction

In statistics and research, it refers to a situation where the effect of one independent variable on a dependent variable changes depending on the level of another independent variable.