The rational expectations theory indicates

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The rational expectations theory indicates that expansionary policy will:

1. Stimulate real output in the long run however not in the short run.

2. Equalize real and nominal interest rates through lengthy periods of inflation.

3. Fail to increase employment because individuals will anticipate it and take actions that will offset its impact.

4. Expand real output and employment if the public quickly anticipates the effects of the expansionary policy.

Reference no: EM13685060

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