The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will fail unless
A)changes in the money supply are unexpected.
B)the government's budget is not in deficit.
C)labour unions have long-term contracts.
D)changes in the money supply are completely anticipated.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that for a monetary policy to effectively stabilize the economy, changes in the money supply must be unexpected. If changes are anticipated, individuals and businesses adjust their behavior in advance, negating the intended effects of the policy.

The Rational Expectations Hypothesis Argues That a Monetary Policy Designed