If You Accept the Rational Expectations Hypothesis as Accurate, What

question 97

Multiple Choice

If you accept the rational expectations hypothesis as accurate, what would you tell monetary policy makers who ask you how to more effectively manage the economy?

• A) Consumers do not understand the workings of monetary policy, so discretionary and nondiscretionary policies are equally effective.
• B) Individuals do understand how monetary policy works, so consistency and predictability are the keys to effective policy making.
• C) Individuals base their economic expectations solely on current information, so repeating policy decisions that have worked in the past is the most effective path to take.
• D) Only unanticipated policies will be effective once individuals understand how monetary policy works.

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