The conclusion of adaptive expectations theory is that expansionary monetary and fiscal policies intended to reduce the unemployment rate are

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Business

Leonardo Cohen

4 September, 10:23

The conclusion of adaptive expectations theory is that expansionary monetary and fiscal policies intended to reduce the unemployment rate are

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Ryan Harrison · Answer 1

Adaptive expectation theory concludes that the policies are useless in the long run. This conclusion is based on the observation that after a short run reduction in unemployment, the economy will resets its self to the natural rate of unemployment but at a higher inflation rate. This results in no long run improvement in inflation and unemployment.