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.

---

Definitions:

Airline Pilots

Qualified individuals authorized to operate the flight controls of an aircraft.

Fruit Pickers

Individuals who harvest fruit crops, often working seasonally and moving locations based on harvest times.

Union Strong

Refers to the robustness and effectiveness of labor unions in advocating for workers' rights and negotiating better wages and working conditions.

Real Wages

Wages adjusted for inflation, reflecting the purchasing power of income received for work.