Asked by Logan Sisson on Jul 15, 2024
Verified
Statement I: According to the rational expectations theory,the prime economic mover is aggregate supply,not aggregate demand.
Statement II: Unlike the "old" classical economists of the 19th century,the rational expectationists of today believe that government intervention to affect aggregate demand is sometimes necessary.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Rational Expectations Theory
The hypothesis that individuals form forecasts about the future based on all available information and past experiences, affecting their economic decisions.
Aggregate Supply
The total supply of goods and services that firms in an economy plan on selling during a specific time period.
Government Intervention
The direct or indirect involvement of governmental actions in the market to influence the economy, correct market failures, or protect the public interest.
- Distinguish the contrasting and comparable elements in the methodologies of classical economists, Keynesians, and monetarists towards economic stability and growth.
- Compare and distinguish the various economic ideologies and their stances on the extent of governmental intervention in the economy.
Verified Answer
AT
Ahsan TariqJul 18, 2024
Final Answer :
A
Explanation :
Statement I is true as rational expectations theory does focus on how expectations of future economic conditions influence current economic outcomes, often emphasizing the role of supply-side factors. Statement II is false because rational expectationists generally believe that markets are efficient and that government intervention is often unnecessary or counterproductive, not that it is sometimes necessary.
Learning Objectives
- Distinguish the contrasting and comparable elements in the methodologies of classical economists, Keynesians, and monetarists towards economic stability and growth.
- Compare and distinguish the various economic ideologies and their stances on the extent of governmental intervention in the economy.