In comparing monetarism and rational expectations theory, we ﬁnd that
A) both favor policy rules and for the same reasons.
B) both favor policy rules, but for different reasons.
C) both favor discretionary policies.
D) the former favors discretionary policy, while the latter favors policy rules.

Question

Quizplus · Accepted Answer

Monetarism and rational expectations theory both advocate for policy rules rather than discretionary policies, but their underlying reasons differ. Monetarism emphasizes the importance of controlling the money supply to manage inflation and stabilize the economy, while rational expectations theory focuses on the predictability and credibility of policy to shape economic agents' expectations and behaviors.

In Comparing Monetarism and Rational Expectations Theory, We ﬁNd That