The theory of rational expectations concludes that

A) discretionary policies are more effective than rules in stabilizing the economy.
B) discretionary fiscal policy is a more powerful stabilization device than is discretionary monetary policy.
C) discretionary monetary policy is a more powerful stabilization device than is discretionary fiscal policy.
D) since expectations can leave discretionary stabilization policies ineffective,it is better to rely upon policy rules.

Rational Expectations

An economic theory suggesting that individuals make predictions about future economic events using all available information in an unbiased and informed manner.

Discretionary Policies

Economic policies based on the judgment and decisions of policymakers, as opposed to set rules or formulas, often involving changes in government spending or taxation.

Policy Rules

Guidelines or protocols that dictate the actions of an organization or government in specific situations to achieve desired outcomes.