Asked by Yocabed Efrem on Jul 15, 2024
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The main criticism leveled at the rational expectations school of economic thought is that
A) they assume too much influence due to monopoly power.
B) they just go too far in ascribing rationality to the general population.
C) the assumption that the velocity of circulation is predictable in the short run is not borne out by the facts.
D) the assumption that labor union contracts create a rigid wage structure is unrealistic.
Rational Expectations
An economic theory which proposes that individuals make decisions based on their rational outlook, available information, and past experiences.
Ascribing Rationality
The assumption that individuals make decisions based on rational thought processes, maximizing utility based on available information.
Velocity of Circulation
The rate at which money is exchanged in an economy, reflecting the frequency with which money is spent on goods and services.
- Gain insight into the criticisms surrounding rational expectations theory and the framework of supply-side economics.
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Learning Objectives
- Gain insight into the criticisms surrounding rational expectations theory and the framework of supply-side economics.
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