According to the Rational Expectations Hypothesis, the Attempt by the Government

question 62

Multiple Choice

According to the rational expectations hypothesis, the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

• A) succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are.
• B) succeed because the government knows how people will react to their policies and will adjust their policies accordingly.
• C) fail because people will figure out what the government is doing and alter their expectations and their behavior in ways that counteract the government policy.
• D) fail because the economy can never achieve an unemployment rate below the natural level.

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Definitions:

Conditioned Response

A learned reaction to a specific stimulus as a result of conditioning.

Sour Milk

Milk that has undergone bacterial fermentation, resulting in a tangy taste due to lactic acid.

Guava

A tropical fruit known for its unique flavor, high vitamin C content, and several health benefits.

Classical Conditioning

An educational technique involving the repeated pairing of two stimuli, leading to a scenario where the reaction initially prompted by the second stimulus is ultimately prompted by the first stimulus.