The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of
A) mainstream macroeconomics.
B) rational expectations theory.
C) real-business-cycle theory.
D) monetarism.

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals form expectations about the future based on all available information, including anticipated changes in monetary policy. Therefore, if changes in the money supply are fully anticipated, individuals and businesses will adjust their behavior in ways that negate the intended effects of those changes on real economic output.

The View That Anticipated Changes in the Money Supply Will