According to Rational Expectations Theory, Discretionary Monetary and Fiscal Policy

question 42

Multiple Choice

According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the:

• A) Successes of macroeconomic policy makers
• B) Inability of policy makers to time decisions properly
• C) Reaction of the public to the expected effects of policy changes
• D) Slow impact of policy to stimulate changes in real output and employment

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Definitions:

Id

In Freudian psychoanalytic theory, the part of the mind in which innate instinctive impulses and primary processes are manifest.

Conscience

An inner feeling or voice viewed as acting as a guide to the rightness or wrongness of one's behavior.

Rational Decisions

Choices made based on logical reasoning, where all alternatives are considered and the most optimal outcome is selected.

Defense Mechanism

Psychological strategies unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.