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Evaluate the statement: "In an important sense the term policy irrelevance proposition is misleading because if the rational expectations hypothesis is valid, economic policy actions can have significant effects on real GDP & the unemployment rate"

correct or incorrect statement?

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This statement is untrue, but not because policy actions don't have an effect. They often do. It is untrue because it is based on a flawed understanding of rational expectations. The statement implies that people who are rational will respond to economic policy actions predictably, enabling them to work. ...

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Policy irrelevance and the rational expectations hypothesis

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