According to the theory based on rational expectations and flexible wages and prices,
A) fiscal policy has less effect on real GDP than monetary policy in the long run.
B) monetary policy has less effect on real GDP than fiscal policy in the long run.
C) neither fiscal nor monetary policy influence real GDP in the long run.
D) only the combination of discretionary fiscal policy and conservative monetary policy can affect real GDP in the long run.

Question

Quizplus · Accepted Answer

The theory based on rational expectations and flexible wages and prices suggests that neither fiscal nor monetary policy can influence real GDP in the long run. This is because individuals and businesses adjust their expectations and actions in response to policy changes, neutralizing the effects of these policies on real output.

According to the Theory Based on Rational Expectations and Flexible