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Can a Keynesian Still Believe in an Active Counter-Cyclical Policy

Question 26

Multiple Choice

Can a Keynesian still believe in an active counter-cyclical policy if she adopts the assumption of rational expectations?


A) No, it destroys the case for active policy.
B) Yes, so long as she continues to assume wage and price rigidity.
C) Yes, if she also adopts the assumption of wage and price flexibility.
D) Yes, if she assumes that economic policy shifts are anticipated in advance.

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