The policy ineffectiveness proposition ________.
A) asserts that anticipated changes in monetary policy cannot affect real aggregate output
B) does not rule out output effects from policy surprises
C) implies that an anticipated contractionary monetary policy cannot reduce the rate of inflation
D) Both A and B of the above

Question

Quizplus · Accepted Answer

The policy ineffectiveness proposition asserts that anticipated changes in monetary policy cannot affect real aggregate output (Option A) but it does not rule out output effects from policy surprises (Option B). Therefore, Option D is correct. Option C is not correct because the policy ineffectiveness proposition implies that an anticipated contractionary monetary policy cannot reduce output but it does not say anything specifically about the rate of inflation.

The Policy Ineffectiveness Proposition ________