The impact of the expansionary monetary and fiscal policies on unemployment rate.

Question

Compared to the Adaptive Expectations Theory, the Rational Expectations Theory A) asserts the same conclusions about policy activism.B) implies that policy activism is less effectiveC) implies that policy activism is more effective.D) asserts that people cannot anticipate the effects of policies in advance.E) the inflation arising from an expansionary policy will be less.

Answer 1

Question

Chapter 27, Problem 11SQ

To determine

The impact of the expansionary monetary and fiscal policies on unemployment rate.

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Compared to the Adaptive Expectations Theory, the Rational Expectations Theory A) asserts the same conclusions about policy activism.B) implies that policy activism is less effectiveC) implies that policy activism is more effective.D) asserts that people cannot anticipate the effects of policies in advance.E) the inflation arising from an expansionary policy will be less.

According to the rational-expectations approach, if everyone believes that policymakers are committed to reducing inflation, the cost of reducing inflation—the sacrifice ratio—will be lower than if the public is skeptical about the policymakers’ intentions. Why might this be true? How might credibility be achieved?

According to the rational-expectations approach, if everyone believes that policymakers are committed to reducing inflation, the cost of reducing inflation—the sacrifice ratio—will be lower than if the public is skeptical about the policymakers’ intentions.Why might this be true? How might credibility be achieved?