The Theory of Rational Expectations Contends That Policy Activism Is

Multiple Choice

The theory of rational expectations contends that policy activism is:

A) not warranted, because we don't know enough about the workings of the economy to stabilize it.
B) not warranted; the public defeats discretionary policies because everyone expects them and therefore their effectiveness is thwarted.
C) warranted because discretionary policies have a strong effect on real output.
D) warranted because expectations are rational only in the short run.