Macroeconomics, 2nd Edition by Pearson

THE LABOUR MARKET

227

This means that when

EXPECTATIONS ARE RATIONAL

, unemployment deviates

randomly from the natural rate of unemployment. Even in the

short run,

deviations from the long-run Phillips curve or the

AS

function are purely ran-

dom unlike the case of adaptive expectations.

Rational expectations theorists attribute the departure of the short-run

AS

function from the vertical long-run

AS

function due to random mispercep-

tions about price rather than any systematic errors of expectation. An impor-

tant implication of rational expectations then is that if governments attempt

to reduce unemployment below the natural ...