What is the difference between the Keynesian and rational ...

[SGallaher96]

What is the difference between the Keynesian and rational expectations theories concerning the success of stabilization policy?

Question 2

If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI) will tend to have an upward bias over time (overstates inflation).
 a. True
  b. False
  Indicate whether the statement is true or false

[aliotak]

Answer to Question 1

The Keynesians believe that government can affect real GDP and employment. The rational expectationists believe that government stabilization policies have no effect on real GDP or employment. The only effect is on the price level.

Answer to Question 2

True