_____13. It follows from the assumptions of the rational-expectations macroecono
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Question
_____13. It follows from the assumptions of the rational-expectations macroeconomics that:
most unemployment is voluntary.
monetary policy can work in the short run but not in the long run.
fiscal policy is hamstrung because of delays in the legislative process in Congress.
all policy that is predictable will be undone by clever citizens.
all are true.
_____14. Which of the following is true according to monetarist theory?
The IS curve is quite steep while the LM Curve is relatively flat.
Changes in the money supply have their greatest effect on prices.
Fiscal policy can do little to improve economic conditions, but much to worsen them.
Real GDP stays at or near potential output most of the time.
All of the above are true.
Explanation / Answer
3. Rational expectation theory says that people, and workers are rational and decide based on the past information and future projections. Hence , all policies measures may be effective in short run but in long run, all are quite ineffective. Thus, economy shall remain at the natural rate of unemployment.
Hence correct answer is all are true.
4) Monetarists do not support the government interference in the economic activities and believe that fiscal policy can not work towards the full employment. Full employment is self propogated phenomenon and government does not need to participate in the economic activities
hence correct answer is All of the above are true.
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