Question

True or False: If people have rational expectations, the sacrifice ratio could be much smaller than suggested by the short-run Phillips curve.

Answer 1

People often have different expectations. If people have rational expectations, the sacrifice ratio could be much smaller than suggested by the short-run Phillips curve is a false a statement.

• The sacrifice ratio is said to be smaller than suggested by former estimates. The short-run phillips curve will ten to shift downward and the economy would reach low inflation very fast.

Rational expectations  is known to be an economic theory. It simply states that when making decisions, individual agents will capitalize their decisions on the information that is best and available and they also learn from past trends.

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