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Rational expectations theory suggests that​ short-run stabilization policy

Rational expectations theory suggests that​ short-run stabilization policy

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Under rational expectations theory consumers are expected to use all the available information including the past information to make expected market formations with respect to the price. In this manner if there is a stabilization policy in the short run, this could be fiscal as well as monetary in nature because both are equally productive and efficient in the short run. Therefore, both the fiscal and monetary policy are equally effective for rational expectations built stabilization

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