The Rational Expectations Theory Indicates That Expansionary Policy Will

Multiple Choice

The rational expectations theory indicates that expansionary policy will

A) stimulate real output in the long run but not in the short run.
B) expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
C) equalize real and nominal interest rates during lengthy periods of inflation.
D) fail to increase employment because individuals will anticipate it and take actions that will offset its impact.