Suppose That Monetary Policymakers Announced That They Were Going to Make

Multiple Choice

Suppose that monetary policymakers announced that they were going to make a serious effort to fight inflation. A few years later the inflation rate has been reduced, but there had also been a serious recession. Which of the following could we conclude with certainty?

A) We could conclude that the rational expectations hypothesis is false.
B) We could conclude that the rational expectations hypothesis is true.
C) We could conclude that the policymakers lacked credibility.
D) No conclusion about the rational expectations theory or the policymakers' credibility can be drawn with certainty.