Macroeconomics 12th Edition by William Baumol,Alan Blinder

Exercise 6

What is meant by "rational" expectations? Why does the hypothesis of rational expectations have such stunning implications for economic policy? Would believers in rational expectations want to shorten a recession by expanding aggregate demand? Would they want to fight inflation by reducing aggregate demand? Relate this analysis to your answer to Test Yourself Question 1.
Reference Test Yourself Question 1.
Show that if the economy's aggregate supply curve is vertical, fluctuations in the growth of aggregate demand produce only fluctuations in inflation with no effect on output.