The rational expectations school advocates the passive rule of a fixed-growth rate monetary policy because:
a. policy makers often do not have enough information to pursue an active policy.
b. active intervention is required only if an economy is in recession.
c. a large bureaucracy can be eliminated by following the passive approach.
d. people render active policy ineffective by figuring out what it's going to be and taking actions to offset it.
e. they prefer to emphasize on an active fiscal policy.
Question 2
Economists of the rational expectations school:
a. have no confidence in the ability of workers and firms to observe and react to economic events.
b. believe workers and firms behave the same regardless of what the Fed does.
c. have great faith in the ability of monetary policy makers to maintain a full employment economy with stable prices.
d. believe that effective monetary policy can shift the potential level of output to the right.
e. believe workers and firms make decisions based on what they think monetary policy will be in the future.
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