In the rational expectations view,
A)wages are flexible downward but prices are inflexible downward.
B)prices are flexible downward but wages are inflexible downward.
C)discretionary policy tends to be countercyclical.
D)discretionary policy tends to be ineffective.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals use all available information to make economic decisions, anticipating the effects of policy changes. As a result, discretionary policy is often ineffective because people adjust their behavior in anticipation of these policies, neutralizing their intended effects.

In the Rational Expectations View