Under the adaptive expectations theory, expansionary monetary and fiscal policies designed to reduce the unemployment rate will be
A) ineffective in the long run.
B) ineffective in the short run.
C) noninflationary.
D) all of the above.

Question

Quizplus · Accepted Answer

According to the adaptive expectations theory, people will adjust their expectations for inflation based on past experience. Thus, expansionary monetary and fiscal policies may temporarily reduce unemployment, but they will eventually lead to higher inflation expectations and, in the long run, be ineffective at reducing unemployment.

Under the Adaptive Expectations Theory, Expansionary Monetary and Fiscal Policies