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Suppose a central bank announced that it was going to make a serious effort to fight...

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that

a. the rational expectations hypothesis is false.

b. the rational expectations hypothesis is true.

c. the policymakers lacked credibility.

d. None of the above is certai

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Answer #1

The correct option is d.) None of the above is certain.

Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later the inflation rate is lower, but there had been a serious recession. When it happen we cannot certainly say whether rational expectations hypothesis is true or false or that the policy makers lacked credibility. Therefore, the correct option is D.) None of the above is certain.

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