The Main Policy Conclusion of the Rational Expectations School Is

question 22

Multiple Choice

The main policy conclusion of the rational expectations school is

• A)fiscal policy lags are so long and variable that such policy is worthless,but monetary policy can be helpful
• B)monetary policy lags are so long and variable that such policy is worthless,but fiscal policy can be helpful
• C)both monetary and fiscal policy can be helpful if policy makers correctly anticipate the plans of firms and households
• D)both monetary and fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers
• E)neither monetary nor fiscal policy can be helpful if firms and households correctly anticipate the plans of policy makers

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Definitions:

Business Cycles

The natural rise and fall of economic growth that occurs over time, consisting of periods of expansion (growth) and contraction (recession) in an economy.

Economic Theory

A set of principles and methodologies that explain how economies function, covering topics from microeconomics to macroeconomics.

Economic Systems

The organized way a society allocates its resources and distributes goods and services among its population.

Recession

A short-term economic slump characterized by a reduction in business and industrial activities, usually signified by a GDP decrease over two back-to-back quarters.