Author Question: Which of the following is an implication of rational expectations theory? A) Deviations of output ... (Read 35 times)

littleanan · **on:** Jun 30, 2018

Which of the following is an implication of rational expectations theory?

A) Deviations of output from the natural rate are likely to be serious and long-lived.
B) The economy is like a complex machine, that needs to be optimally controlled with the proper policy.
C) Macroeconometric models based on past behavior will not be very useful in formulating policy.
D) Wages and prices are set almost entirely at random, so it is pointless to try to model their behavior.
E) Business cycles almost always result from a shift in aggregate demand.

Question 2

Milton Friedman attributed the Great Depression primarily to

A) the government's failure to respond to an increase in the budget deficit.
B) a reduction in the money supply.
C) economists' and policy-makers' failure to acknowledge their limited knowledge.
D) the failure of wages to rise.
E) inaccurate expectations by consumers and firms.