Policy Ineffectiveness

This applies much more generally. Any consistent set of government policies will be learned and anticipated by a population with Rational Expectations. Since they are anticipated, they will not come as a surprise. Instead, people will shift their short-run aggregate supply curves in such a way that production will be back at the NAIRGDP and unemployment at the NAIRU. If the policies are designed to move the economy away from the NAIRGDP, then they will be ineffective -- regardless what mix of fiscal and monetary policies they are.

This leads to the general Policy Ineffectiveness Proposition.

Policy Ineffectiveness Proposition

Any consistent government policies designed to influence the economy to a level of production other than the NAIRGDP will be ineffective if the population have rational expectations.

Scope