If expectations are rational, can monetary and fiscal policy makers accurately control the effects their policies have on unemployment?
A)Yes, provided they announce policies in advance.
B)Yes, both policies are effective in altering unemployment in the desired ways.
C)No, because these effects depend on whether and to what extent people are fooled by those policies.
D)No, only fiscal policy can alter unemployment.

Question

If expectations are rational, can monetary and fiscal policy makers accurately control the effects their policies have on unemployment?
A)​Yes, provided they announce policies in advance.
B)​Yes, both policies are effective in altering unemployment in the desired ways.
C)​No, because these effects depend on whether and to what extent people are fooled by those policies.
D)​No, only fiscal policy can alter unemployment.

Quizplus · Accepted Answer

If expectations are rational, people are not easily fooled by policies, and their actions in response to those policies are not predictable. Therefore, policymakers cannot accurately predict the effects of their policies on unemployment.

If Expectations Are Rational, Can Monetary and Fiscal Policy Makers