According to Rational Expectations Theory

question 96

Multiple Choice

According to rational expectations theory:

• A)​a large reduction in unemployment can be achieved with a relatively small increase in inflation.
• B)​people are not easily fooled by changes in government fiscal policy.
• C)​inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time.
• D)​the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate.

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Definitions:

Domestic Output

The aggregate value of every product and service created within the confines of a nation during a specific period.

Redistribution

The reallocation of income, wealth, or resources among individuals or groups in a society.

Economic Discrimination

Unfair treatment of individuals based on economic factors, such as income, wealth, or consumption patterns.

Diagram

A diagram is a simplified drawing showing the appearance, structure, or workings of something; used extensively to explain economic theories and models.