Exam 21: The Role of Expectations in Macroeconomic Policy

Comment on the ability of a credible nominal anchor to allow policy makers to exploit a short-run trade-off between unemployment and inflation.

Rational expectations theory suggests that ________.

Robert Lucas spurred the rational expectations revolution in ________.

Forecasts based on the extrapolation of observed trends and relationships are likely to be accurate, if ________.

If the public believes that the commitment to a nominal anchor is not credible, the effect of a positive aggregate demand shock is for ________.