Asked by Kierra Horton on May 19, 2024
Verified
Rational expectations theory is based on all of the following assumptions,except
A) that individuals and business firms learn through experience to anticipate the consequences of changes in monetary and fiscal policy.
B) that individuals and business firms act instantaneously to protect their economic interests.
C) that demand creates its own supply.
D) that all resource and product markets are purely competitive.
Rational Expectations
The hypothesis that individuals form forecasts about the future based on all available information in an unbiased and logical manner.
Monetary
Pertaining to money, including aspects related to money supply, banking, and monetary policy used by a government to influence an economy.
Fiscal Policy
Government adjustments in spending levels and tax rates to monitor and influence a nation's economy.
- Interpret the implications of rational expectations theory for monetary and fiscal policy efficacy.
Verified Answer
VS
Victoria ShremMay 25, 2024
Final Answer :
C
Explanation :
Rational expectations theory assumes that individuals and business firms learn through experience to anticipate the consequences of changes in monetary and fiscal policy, act instantaneously to protect their economic interests, and that all resource and product markets are purely competitive. However, it does not assume that demand creates its own supply, making option C the correct answer.
Learning Objectives
- Interpret the implications of rational expectations theory for monetary and fiscal policy efficacy.