The idea that anticipated monetary policy cannot affect real variables such as real Gross Domestic Product (GDP) or employment is known as
A) the Keynesian hypothesis.
B) the policy irrelevance proposition.
C) the job search model.
D) the monetary velocity theory.

Question

Quizplus · Accepted Answer

The policy irrelevance proposition states that anticipated monetary policy cannot affect real variables such as real GDP or employment. This idea is often associated with the rational expectations hypothesis, which argues that individuals and firms can accurately predict the effects of monetary policy and therefore adjust their behavior accordingly, making it difficult for policymakers to achieve significant real effects through monetary policy.

The Idea That Anticipated Monetary Policy Cannot Affect Real Variables