Answer:
The best answer to the question: According to Rational Expectations theory, monetary policy is:____, would be, B: effective only if it is unexpected.
Explanation:
The Rational Expectations theory is a model and concept that tends to explain how people react to economic situations, and behave in certain moments, economically speaking, both personal and nationwide, taking three particularities into account: their own rational thought process, the information that is given to them, and also, and most importantly, their past experiences. To the point that future economic outcomes can be foreseen by people given their past experiences. These factors will drive their decisions on spending, borrowing money, and economic activities. The monetary policy is defined as the means by which the institutions responsible for controlling the economy of a nation do so by either managing the interest rates on borrowing, and lending, and also by issuing policies on money availability and supply in the market. In combination, people who favor the Rational Expectations theory tend to believe that the option on answer B is better because then people do not have the chance to have formed prejudices against the policy being issued, and will respond more favorably, being open to adaptation, rather than rejection.
