If you accept the rational expectations hypothesis as accurate, what would you tell monetary policy makers who ask you how to more effectively manage the economy?
A) Individuals do understand how monetary policy works, so consistency and predictability are the keys to effective policy making.
B) Only unanticipated policies will be effective once individuals understand how monetary policy works.
C) Consumers do not understand the workings of monetary policy, so discretionary and nondiscretionary policies are equally effective.
D) Individuals base their economic expectations solely on current information, so repeating policy decisions that have worked in the past is the most effective path to take.
Question 2
Which of the following shifts the entire consumption function upwards?
A) a decrease in the value of consumer durables B) an increase in consumer wealth
C) a decrease in consumer confidence D) an increase in income
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