According to the rational expectations model,the attempt by the government to reduce unemployment below its natural rate through expansionary policies will
A)succeed in the short run and can succeed in the long run as long as the government makes it clear what its goals are.
B)succeed because the government knows how people will react to their policies and will adjust their policies accordingly.
C)fail because people will figure out what the government is doing and alter their expectations and their behaviour in ways that counteract the government policy.
D)fail because the economy can never achieve an unemployment rate below the natural level.

Question

Quizplus · Accepted Answer

According to the rational expectations model, people form expectations about future economic conditions based on all available information, including the government's policy actions. Therefore, if the government attempts to reduce unemployment below its natural rate through expansionary policies, people will anticipate higher inflation and adjust their behavior accordingly, leading to wage and price increases that offset the effects of the government policy. As a result, the expansionary policy will fail to bring down unemployment below its natural rate in the long run.

According to the Rational Expectations Model,the Attempt by the Government