The theory of rational expectations calls for monetary policy rules because
A) of past policy errors.
B) policy tends to be countercyclical.
C) of the inability to time policy decisions.
D) of the reaction of the public to the expected effects of policy.

Question

Quizplus · Accepted Answer

The theory of rational expectations suggests that people make decisions rationally based on all available information, including their expectations of future policy. Therefore, monetary policy rules are necessary to guide the public's expectations and reactions to policy decisions.

The Theory of Rational Expectations Calls for Monetary Policy Rules