Briefly explain how rational expectations theorists feel about government attempts to reach macroeconomic goals, and why.
What will be an ideal response?
Student responses will vary but should accurately describe how rational expectations theorists believe that attempts to reach macroeconomic goals are of limited effectiveness because people will react to them in ways that cancel much of their effects. Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of limited effectiveness. When policy targets become public, they feel, people will alter their own behavior from what it would otherwise have been to maximize their own utility, and in so doing, they largely negate the intended impact of policy changes.
You might also like to view...
The property rights people actually possess
A) are limited to the rights sanctioned by law. B) are the rights they can exercise regardless of what others do. C) are the similar rights they grant other because all rights in a society must be mutual. D) depend heavily on the cooperation of other people.
In the negative income tax plan, a guarantee of $5,000 and a tax rate of 50 percent imply a break-even income of which of the following figures?
a. $1,000 b. $2,500 c. $10,000 d. $12,500
Scarcity results when available resources cannot satisfy all desired uses of those resources.
Answer the following statement true (T) or false (F)
Which of the following is a measure of economic growth that is most useful for measuring geopolitical preeminence or military potential?
A. Growth in nominal GDP B. Decreases in the rate of unemployment C. Increases in real GDP per capita D. Increases in real GDP